He described today's proposal as the start of a comprehensive rewrite of the tax code and invited public discussion of the plan.

Reduced Corporate Rate

Camp wants to lower the U.S. corporate tax rate to 25 percent from 35 percent. His discussion draft doesn't include details on how he plans to do that without increasing the federal budget deficit, and he didn't provide a timeline for filling in the blank sections on individual and business taxation.

“There's no real calendar prediction here,” said Camp, who also serves on the congressional supercommittee charged with finding at least $1.2 trillion in deficit reduction.

Advancing broad tax legislation in this Congress would require Camp to navigate a divided legislature in an election- year climate. The Obama administration has expressed interest in a tax-code rewrite, though officials emphasize that they would want it to raise more revenue than the current system does. In response, Republicans have stressed their opposition to tax increases.

Camp's plan would exempt 95 percent of U.S. profits earned overseas from taxation, ending a system that taxes U.S. companies on their worldwide income. The current system allows companies to claim tax credits for payments to other governments and defer taxation until the profits are brought home. That approach has encouraged companies to keep more than $1 trillion in profits outside the U.S.

One-Time Holiday

Google Inc., Apple Inc. and Qualcomm Inc. are part of a coalition urging a one-time tax holiday that would let them bring home the accumulated profits at a low tax rate.

Camp's proposal would require those companies and others to pay a 5.25 percent tax on accumulated overseas profits over eight years as part of a transition to a new system, whether they actually bring the money back home.

Once companies paid that toll charge on the overseas profits, they could repatriate the money with the new 95 percent exemption.

Camp said the international portion of his plan would be revenue-neutral. The money from the so-called deemed repatriation would offset the forgone revenue from the rest of the plan, at least in the first decade.

In the long run, when those proceeds disappear, Camp's proposed system would cost the government revenue, said Edward Kleinbard, a professor at the University of Southern California.

'Arbitraging the Artifice'

“That's a one-time pickup, and yes, that can comply with a 10-year window, but then you're just arbitraging the artifice of the congressional budget window,” said Kleinbard, the former chief of staff of the congressional Joint Committee on Taxation.

Some Democrats said they worried that a territorial system would encourage companies to shift operations out of the U.S.

“While Halloween approaches, no matter how you dress up this proposal, a territorial tax system is about shipping more jobs and profits to someone else's territory,” said Representative Lloyd Doggett, a Texas Democrat, in a statement.

The effect of a territorial system depends greatly on the details, particularly on whether companies can deduct domestic expenses related to producing untaxed foreign income.

Camp's 95 percent exemption approach forgoes detailed expense allocation rules in favor of a “rough justice” approach, said Rosanne Altshuler, an economics professor at Rutgers University in New Jersey.

Doggett and other Democrats say that companies' flexibility in keeping their intellectual property outside the U.S. is eroding the domestic tax base, even under the deferral system.

Preventing Income-Shifting

Camp's proposal includes three options for preventing such income shifting. One is a maximum 15 percent tax rate for foreign income generated from royalties. That income would be taxed as domestic income if it's earned in a low-tax country.

The second proposal would limit companies' ability to earn profits in low-tax jurisdictions. Subsidiaries that book profits in countries with tax rates below 10 percent wouldn't qualify for the foreign-profit exemption unless the income was generated from business operations in that country.

The third idea would adopt an approach favored by President Barack Obama to tax “excess returns” from intangible property located outside the U.S.

Kleinbard said he would make some of those options tougher. Still, he said, “It's important to acknowledge that Chairman Camp and the drafters recognize that there are serious problems with a territorial tax system with base erosion concerns.”

Camp also includes so-called “thin capitalization” rules to prevent companies from taking interest deductions against U.S. profits to support lightly taxed foreign operations. Companies would see their interest deductions reduced if they are overleveraged in the U.S. compared with the rest of the world and if their interest expense is too high relative to income, according to a summary of the bill.

Bloomberg News