The United States last passed comprehensive tax reform in 1986 before anyone could conceive the transformative impact the digital economy would have on society. Businesses of all sizes are harnessing the power of the internet, entering new markets, selling goods and services, creating over 6.7 million tech jobs in the United States and around the world, and investing capital bolstering our economic growth. However, future success is not guaranteed and lawmakers need to act to ensure the U.S. continues to create an environment that encourages economic investment and job creation by updating our tax code.
Beyond our borders, our broken system causes problems for companies operating around the world. Look no further than Europe to find examples. The European Commission has been trying to change the way tax laws are interpreted and trying to apply retroactive taxes, just last week France tried to wrongfully claim Google owed back taxes, even though Google had been abiding by French law and international standards. In that most recent case, the Court sided with Google, affirming the company followed the law. Despite this clear victory, the case is further evidence that we need a simpler, competitive system.
It is in that spirit, we sent Senator Orin Hatch (R-Utah), chairman of the Senate Finance Committee, a outlining our priorities for a modern U.S tax code that incentivizes investment within the United States. In our letter, we highlighted what policies would be best to unleash economic growth. They include:
- Broadening the base, which increases the amount of income subject to taxation, will allow Congress to lower the overall rate, making the United States more competitive in the global arena. ITI companies feel that a lower rate is more important than changes to expensing. Proposals offering 100 percent expensing in place of interest deductibility are concerning as there are numerous, non-tax reasons that businesses choose debt over equity when raising capital;
- Adopting a competitive territorial tax system where profits are taxed where they occur is essential to aligning our system with the rest of the world. ITI member companies support a 95 percent dividend deduction regime such has been proposed in past efforts at international reform. Any base erosion policy should cause as little friction as possible in overseas operations and should not overtly penalize specific sectors of the economy;
- Taking duel rate approach for offshore earnings, similar to the provision included in the House Tax Reform Blueprint that would apply an 8.75 percent tax to accumulated foreign earnings held in cash and cash equivalents and a 3.5 percent tax to accumulated foreign earnings invested in other assets; and
- Retaining the Research and Development credit and making it permanent, which will give businesses the certainty and incentive needed to innovate, and expand the alternative simplified credit rate to 20 percent.
Tax reform provides an ideal opportunity to further craft policies to ensure the United States remains the global leader in innovative technologies. ITI hopes that lawmakers can move politics aside for the good of the country so tech companies and the business community more broadly can do what we do best: create U.S. jobs and invest capital within the United States. We stand ready to work with Congress and the White House to get meaningful legislation signed, sealed, and delivered.