The chorus of voices calling for a competitive U.S. tax code to spark job growth and economic investment is growing stronger by the day.
Add Bloomberg to the choir.
Its editorial published Sunday night makes clear that the political hyperbole around tax reform isn’t creating jobs. What will is actual tax reform – and the adoption of a lower corporate rate and a competitive territorial system should be at the heart of the changes.
“Properly structured, and combined with a lower corporate- income-tax rate, a so-called territorial system could make U.S. companies more competitive, simplify the tax code, reduce compliance costs, boost real wages and enable companies to repatriate the more than $1.2 trillion they are now holding abroad for fear of the tax man.”
The fact is that the U.S. tax code is complex, chaotic, and contradictory, and it is costing America jobs. The last major overhaul was in 1986, when the global economy was not as fiercely competitive and integrated as today. The outdated tax code has become an obstacle to American competitiveness as U.S. companies work to compete and win in a global marketplace. Meanwhile, many countries are aggressively cutting their tax rates and adopting competitive territorial systems to attract new jobs and investments. American companies need a world-class tax structure to suceed in a worldwide market.
Bloomberg puts it plainly.
“The U.S.’s current ‘worldwide’ tax system is a mess. Large companies are taxed on all their income, domestic and international, at a top official rate of 35 percent (one of the highest in the world, although most pay a lower effective rate). When these companies earn money abroad, they pay taxes to the host government, then again to the U.S. when the profits are repatriated. They receive credits for what they’ve already paid in foreign taxes, and can defer U.S. taxes until the profit is brought home.”
The U.S. corporate tax code should be about creating, not punishing, success.
Today’s tax code is an antiquated system that penalizes American companies that invest their foreign earnings in the U.S. A modern, responsible tax code is one that incentivizes investment of foreign earnings in the U.S., creating jobs here at home. A lower corporate rate would help level the playing field in global markets. A competitive territorial system would end the practice of double taxing a U.S. company’s foreign earnings – a practice that virtually none of our foreign competitors have to worry about. And permanent tax incentives to promote breakthrough research and development would add further fuel the revitalization of the U.S. as the world’s innovation hub. Together, these pillars of tax reform are long overdue, and are essential to a job-generating economic growth in the U.S.