I was just pointing out that the low effective tax due to shifting income is the unintended consequence.One has to wonder what unintended conciquences would come along with closing this loophole.
Random thought. Corporations pay no federal income tax. Instead, we keep the tax rules in place and, instead of taxes, the corporation has to pay a dividend to their shareholders which is equal to the tax they would have paid to the government. Then, individuals pay ordinary income on the dividends. The dividend rate would have to go up a bit to replace the corporate tax, but it shouldn't be hard to get that number right.
Doing it this way changes the whole dynamic. Right now, working for the benefit of the shareholders means minimizing the federal tax that is paid. With this change, working to benefit the shareholders would mean minimizing deductions rather than maximizing them. It would mean that shareholders would benefit by having the companies show profits in the US. Shareholders would want the companies to have a higher "tax" rate because they would get a major cut of the proceeds.
If a company is not publicly traded, it pays the dividend to the government (perhaps at a discounted rate, but not a lot).
The shareholders of large companies would then be looking for ways to reduce the loopholes.
The effective rate the companies pay is about half the statutory rate (~35%), and the effective rate on all tax payers is about 20%. Set the tax on dividends to 45% and the statutory dividend rate at 45% and it ends up being almost revenue neutral. Stockholders would love it.
Just a thought.