U.S. companies hold abroad approximately $2.5 trillion in past foreign profits. The U.S. Treasury collects little revenue from foreign profits, and U.S. corporations are discouraged from investing those profits back in this country.
For years, many Republicans advocated a “territorial” system — whereby U.S. corporations would be taxed on their profits only in the country where they were earned. That system would be disastrous for the U.S. economy: American corporations would have a strong incentive to locate their physical facilities and intellectual property in countries with very low tax rates, like Bermuda or Singapore.
In response, Ryan has cleverly put forward a plan for “border adjustments.” Under this plan, all exports produced in the U.S. would be exempt from U.S. corporate taxes. This exemption would obviously minimize the incentive for U.S. corporations to move production outside our borders.