In recent weeks, Washington policymakers have become increasingly more vocal about their desires to fundamentally change the tax code that governs the income that U.S. based companies earn outside of the country. Many are considering how to alter the current system to make it easier for these companies to bring home foreign income that has been taxed elsewhere. During his recent confirmation hearings on Capitol Hill, Treasury Secretary Jacob Lew indicated that he saw the potential for agreement on international taxation and made mention of this to Senators.
The sad reality is that while this is a topic of discussion, it is highly unlikely that any substantive action will come in the immediate future. According to a recent report
, “the potential framework is conceptual, not the product of negotiations or the detailed bill-writing that would need to occur.”
With estimates of $1 trillion in U.S. companies’ cash and cash-like investments currently outside U.S. tax jurisdiction, 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.
It has also been widely reported that many companies within the technology industry have also been very vocal on this issue in recent weeks. According to the Financial Times
, U.S. technology firms like Cisco, Dell, Microsoft and Apple are looking to invest
in Europe and Canada after efforts to change U.S. tax policy on foreign cash holdings have stalled. AFP Position
For the past two years, AFP has been consistently communicating with elected officials, encouraging them to take comprehensive action. We believe 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. The U.S. corporate tax code should reflect a rate that encourages U.S. companies to grow their markets 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.
Tax policy that harms the competitiveness of the U.S. will only encourage companies to further expand their investment and hiring in other countries. 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.