Just the Facts:
The Case for International Tax Reform
The Problem:
America’s international tax laws were written during the Kennedy Administration – more than 50
years ago – at a time when U.S. companies had few global competitors and before technology like
the Internet made the world’s economies interconnected.
Today, U.S. international tax laws are an outlier among developed countries and impede the ability
of U.S.-headquartered companies to competitively enter new foreign markets and return those
earnings back home to the United States for investment.
In fact, the U.S. now finds itself the only G8 economy that hasn’t yet modernized its international tax
laws in order to attract more investment. While America has stood still on reform, it has lost a
number of U.S.-headquartered companies, untold investment and overall economic stature.
The current “worldwide” system represents the worst aspects of our tax code – it is overly complex
and often forces U.S. companies to make business decisions based on tax rules, instead of
responding to the demands of customers.
The problem is that U.S. companies are taxed here on their U.S. earnings, taxed abroad on their
foreign earnings, and then taxed again when those foreign earnings are brought back home.
This additional tax locks out investment from ever returning home and discourages companies
from maintaining and locating their headquarters in the United States.
America’s global competitiveness is also compromised due to having the world’s highest corporate
tax rate; further evidence that our nation’s tax laws are creating an unlevel playing field for U.S.
companies and in many cases instituting a toll charge for American employers looking to bring
foreign earnings home to invest.
The Solution:
To strengthen American competitiveness in the global marketplace, comprehensive tax reform
must include a modern, hybrid international tax system - similar to the one used by our trading
partners - that would promote increased U.S. investment , while protecting America’s tax base.
This overdue reform would strengthen the U.S. economy for all Americans by removing barriers to
returning foreign earnings that can be invested in the United States. As much as $1.7 trillion would
be unlocked; bolstering U.S.-headquartered businesses, workers and our economy through
increased research and development, plant expansions, new equipment, and better worker
benefits.
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In addition, a modern, hybrid international tax system would allow U.S. companies to enhance their
ability to serve and open new markets; companies would now be encouraged to invest in their
operations to sell more of their products and services in the global marketplace – where 95% of the
world’s customers live outside the United States.
Foreign competitors and trading partners like Canada, Japan and the U.K., who have recently
transitioned to a modern international tax system, provide proof that reforms lead to improved
economic performance. The U.S. now has an opportunity to learn from these foreign case studies in
order to further adjust the standards and safeguards needed to protect America’s tax base, while
making the U.S. the most attractive place to locate a business in the world.
The Road to Reform:
There is growing bipartisan support for a modern, hybrid international tax system among elected
officials, economic policy experts and the nation’s most trusted business organizations.
Momentum is building in Washington to conduct a top to bottom review of the U.S. tax code and
there is clear recognition that if this long overdue effort is truly to be comprehensive, it must
include the international tax component.
Bipartisan support for international tax reform includes Ways and Means Chairman, Rep. Dave
Camp (R-Mich.) to members of President Obama’s Commissions for Jobs and Competitiveness
(“Jobs Commission”), Fiscal Responsibility and Reform (“Debt Commission”), and many other
independent U.S. advisory boards.
Numerous economic, tax policy, and business experts also agree that a modern international tax
system would enhance American competitiveness and make the U.S. a more attractive place for
investment; this non-partisan support includes organizations such as the National Foreign Trade
Council, National Association of Manufacturers, and the Information Technology Industry Council.
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