Obama puts unitary tax in spotlight

Although President Obama hasn’t referred to it as such, several times recently he has called for global taxation of the profits of multi-national corporations.

In the absence of a unitary tax on a multinational corporation’s worldwide income, it is a simple matter to manipulate the financial transactions of a company to keep from paying taxes to a state or to the federal government. Here’s how it works:

Corporation A in say, Japan, owns Corporation B in Japan and Corporation C in California. Corporation B makes car components and Corporation C assembles them in California. Corporation B gouges Corporation C in invoicing the company for the car components, so that on the books in California, very little profit is made. However, Corporations A and B make out like bandits. Even though their profits were generated in California, they pay next to nothing in California taxes.

A unitary tax would tax Corporation A because it owns Corporation C, so it can’t escape taxation by making it look like the profit was made overseas.


One comment

  1. I still think there is a flaw in Obama’s plan. All the company would have to do is enter an exclusive distribution contract with a separate company who is USA based and has no oversea ties. They would be allowed to make a small profit, but the majority of the profits would still be made overseas.

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