For the first half, almost three-quarters, of the town-hall debate tonight, we thought the candidates actually got it. They reached into the tech toolbox for job creation. Trade. Education. High-skilled immigration reform. Energy innovation and independence. Both candidates recognized the importance each of these areas to our economic future. However, neither came close to outlining a comprehensive national jobs and innovation strategy to accelerate our economic recovery. While they agreed that the pace of the nation’s economic recovery was slower than anyone wants, neither Governor Romney nor President Obama put forward the “all-of-the-above” strategy to accelerate lasting economic strength in America.
Then, with about 20 minutes left, the debate took a turn toward bad ideas backed by bad information, primarily on tax reform. The President criticized the very same competitive, market-based tax reform plan that most advanced economies use and his best economic advisors say is integral to American companies’ competitiveness and ability to create jobs here at home.
The President’s Council on Jobs and Competitiveness called for a “shift to a territorial system of taxation in order to make America more competitive in global markets.” The Jobs Council noted that most other developed nations have adopted this kind of market-based competitive system, and that it would encourage greater investments by American multinational companies here at home. Their comments were backed by the President’s Export Council, which also urged the adoption of such a system to “make the U.S. tax system more competitive with its major trading partners.” The President’s Economic Recovery Advisory Board (PERAB) included a territorial system in its report on tax reform options, noting that it would help to bring foreign earnings home for reinvestment and job creation.
Tonight, the President wrongly said that a territorial tax system would not create jobs here at home, but would create 800,000 jobs overseas.
“One of [Governor Romney’s] big ideas when it comes to corporate tax reform would be to say, if you invest overseas, you make profits overseas, you don’t have to pay U.S. taxes.
“But, of course, if you’re a small business or a mom-and-pop business or a big business starting up here, you’ve got to pay even the reduced rate that Governor Romney’s talking about. And it’s estimated that that will create 800,000 new jobs. The problem is they’ll be in China or India or Germany.”
The President bases this on a study conducted by one academic who, in July, examined the effects of a “pure” territorial system under which U.S. companies would face no domestic taxes on their foreign income. The study never examined whether or not jobs would be created in the U.S.
But a pure territorial system isn’t what’s being considered. Here’s the approach – and why the President is wrong in his assertions. The Congress is looking at ways to build a competitive, market-based tax system that would reduce America’s highest-in-the-world tax rate while eliminating the current double-taxation that U.S. multinational companies face on their foreign earnings. Experts have noted that a competitive territorial tax system, combined with a lower rate, would begin to rationalize a convoluted, inefficient, and outdated system. It would spark stronger economic growth and job creation, creating opportunities for businesses, large and small, to put new products on the market and hire people for new jobs across the country.
We welcome, finally, the greater focus on job creation in this debate. Ours is an industry that has created jobs here in the U.S. during these challenging times. Ours is an industry prepared to invest more in the U.S. toward new innovations, new businesses, and new jobs. However, our determination to create new products has to be matched with a determination to create new policies that will fuel a new wave of U.S. economic growth. Policies like a market-based, competitive tax system have to be a part of the solution, regardless of who emerges the victor in a few short weeks.