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The Resource for the Global Finance Profession

Congress and White House Divided on Corporate Tax Reform

  • By Jeanine H. Arnett, Director, Government Relations & Policy, AFP
  • Published: 2013-04-04

April 1, 2013 marked the one-year anniversary of America's dubious distinction of having the highest corporate tax rates in the world. Yet, Congress is no closer to enacting comprehensive tax reform that it committed to several years ago. Despite the fact that both the Chairman and Ranking Member of the House Ways and Means Committee appear to agree that corporate tax reform is a legislative priority, U.S. firms are still awaiting a solution.

At the onset of the debate back in 2009, the White House, Congress and Corporate America all seemed to agree that the corporate tax rates should be set in the range comparable to other developed nations, and most everyone thought that lowering the basic tax rate was likely the best approach. Now, as policymakers begin to dive into the weeds and discuss specific details associated with lowering general rates, Congress and the White House appear to be on different tracks.

Many AFP members still believe that the U.S. tax code should reflect a rate that encourages American companies to grow wherever opportunity exists and invest their earnings within the U.S. AFP believes that achieving this goal will require a comprehensive reduction in the effective U.S. corporate tax rate to a level on par with competing developed countries.

With an estimated $1 trillion in U.S. companies' cash and cash-like investments currently outside U.S. tax jurisdiction, supporters believe that reforming corporate taxes to be comparable to other developed-nations could generate nearly $950 billion in deployable resources within the U.S. and allow those earnings to stimulate the domestic economy.

Over time, the structural disadvantage resulting from higher tax burdens will be detrimental to U.S. businesses and will reduce their investment, employment levels and profitability both domestically and internationally, even as foreign companies exploit their lower tax burden to lower prices, capture market share and reinvest a larger portion of their profits into future growth.

AFP believes that members of Congress should consider legislation that would implement a permanent change to the tax code to allow U.S. companies to compete for investment of their earnings with other countries that tax those earnings at significantly lower rates.

Tax policy that harms the competitiveness of the U.S. will only encourage companies to further expand their investment and hiring in other countries.

 

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