Trump breaks with other Republican candidates on corporate taxes

Donald Trump has sprinted to the front of the pack of Republican presidential hopefuls by defying party orthodoxy on certain issues, while embracing it in other ways. His tax plan does both.

In proposing to give U.S. multinationals a tax break in return for repatriating overseas profits, Trump is hewing to previous Republican policies, including a tax "holiday" enacted in 2004 under President George W. Bush. Trump said Monday that levying a reduced tax rate on those profits will encourage big U.S. companies -- including Trump's own global real estate empire -- to invest much of the $2.5 trillion they have parked offshore here at home, sparking job-creation and economic growth.

"By way of example, I have millions of dollars overseas. I can't bring it back into this country," Trump told reporters at a news conference to introduce the plan, predicting that the infusion of overseas profits would "put to work in our economy."

Yet Trump also proposes a shift in tax policy that is anathema to most Republican lawmakers: taxing U.S. corporations around the world, rather than allowing them to defer that day of reckoning for their overseas profits.

"This is just exactly opposite of where every other Republican candidate is on the taxation treatment of multinationals," said Martin Sullivan, chief economist at Tax Analysts, formerly an economist with the U.S. Treasury Department and Congress' Joint Committee on Taxation.

Sullivan said the trend around the world has been away from a universal taxation system to a so-called territorial approach, where corporations are liable only for taxes on profits generated within a given country.

"The last time that was proposed was by President Kennedy in 1962, and he could not get it through a democratic congress," Sullivan said.

Trump's plan calls for applying a one-time 10 percent tax rate on corporations' repatriated profits, down sharply from the current 39 percent tax rate. He also favors permanently lowering the tax rate for multinationals, small businesses, sole proprietorships and unincorporated small businesses to 15 percent.

In laying out his plan on Monday, Trump also attacked what he says is a growing trend of corporate "inversions," in which U.S. corporations move the legal address of their headquarters abroad to reduce their tax liability.

"It used to be they would move from New York to Florida, they would move from New Jersey to Texas, or whatever," Trump said. "Now they are talking about moving from the United States to Ireland, and to England and to other places, to Spain where they get treated differently, and frankly better."

Trump would require that multinationals still be on the hook for the one-time 10 percent tax hit even if they chose to keep their profits overseas.

The claim that slashing taxes on corporations' offshore profits would lift the economy is questionable, Sullivan said, citing the 2004 tax holiday, which cut the tax rate on overseas earnings to 5.25 percent.

"There were all these promises back in 2004 that there would be job creation, and it did not pan out -- [it] went mostly for stock buybacks and dividends."

The Senate Permanent Subcommittee on Investigations, chaired by former Michigan Democrat Carl Levin, concluded in 2011 that the last tax holiday "did not produce any of the promised benefits of new jobs or increased research expenditures to spur economic growth."

Despite such findings, other experts defend the idea of a tax holiday as a way to encourage big U.S. companies to invest at home. But they say Trump's timing is off, noting that American corporations are already starting to repatriate overseas earnings as China and other emerging markets lose their luster.

"This was a good idea for five years ago," said Michael Santoro, professor of management and global business at Rutgers University Business School. "There's been reporting that U.S. multinationals are already bringing some of this money back. Especially with the decline of China, for all our problems here in the U.S., our economy is pulling away from the rest of the world as far as being a safe place to invest."