Rep. Calvert Releases Draft Bill to Protect Jobs in the U.S.
Today, Congressman Ken Calvert (CA-42) and Congresswoman Linda Sánchez (CA-38) released draft legislation that would protect high-wage and highly-skilled jobs in America by leveling our tax policy playing field.
"Recent events have made clear that Congress should not sit idly by while our flawed tax policies result in jobs being shipped overseas," said Rep. Calvert. "The increasing prevalence of foreign acquisitions of U.S.-based companies that will cut American jobs is alarming to say the least and we see it happening in my home state. Comprehensive tax reform would be the optimal way to handle this issue but in light of the lack of movement for reform, we must offer solutions that protect the jobs American families depend upon as debate on strengthening our nation's tax policies continues. This legislation is a common sense step that would neutralize the unintended financial motivations that are currently provided by our tax policies for formerly American companies, which have previously inverted, and now wish to purchase or merge with U.S. companies and move operations to another country."
This draft legislation creates disincentives for foreign buyers seeking to acquire U.S. companies and eliminate a substantial portion of the American workforce. The bill is revenue neutral and works by creating a "trip wire" that triggers disincentives to prevent American job loss and protect the U.S. tax base. Specifically, certain foreign buyers who acquire a U.S. company and eliminate more than 30% of U.S. jobs within the first 24 months following the acquisition will face two restrictions on tax?planning techniques:
1) Interest Expense Limitation – Foreign acquirers frequently attempt to minimize their U.S. tax bills by loading up their U.S. subsidiaries with intercompany debt, which produces deductible interest expense. This proposal would tighten the current limitation on deductibility of interest on intercompany lending between a U.S. company and its foreign affiliates. Specifically, the job?loss trip wire would reduce the current
50% limitation to 20% and would remain in place for 5 years.
2) Intellectual Property (IP) Transfer – If IP is migrated from the U.S. company to an offshore related company within 24 months after the acquisition, then the income generated by that IP will be immediately taxed in the US.
These provisions will prevent erosion of the U.S. tax base when substantial U.S. job losses occur. The 30% trip wire creates a disincentive for eliminating a significant number of US jobs. The draft bill is narrowly targeted to address the worst applications of this manipulated aspect of our tax code.
Click HERE for the discussion draft legislative text.
Click HERE for a section-by-section summary of the discussion draft.
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