Study Misses the Mark; US Tax Policy Locks Out Foreign Profits of American Companies

Home » Study Misses the Mark; US Tax Policy Locks Out Foreign Profits of American Companies

Study Misses the Mark; US Tax Policy Locks Out Foreign Profits of American Companies

(Dan Turrentine) Last week, the Citizens for Tax Justice released a study about the money U.S. based-companies technology companies have overseas.  Unfortunately, the entire premise of the study misses the forest for the trees.

The United States economy today faces intense global competition for economic advantages, particularly in innovation-based, high-wage industries.  We are currently one of only six other Organization for Economic Cooperation and Development (OECD) countries (Chile, Ireland, Korea, Mexico, and Poland) that use a worldwide tax regime in which foreign earnings are subject to domestic tax when remitted home (the difference between the jurisdiction where the earnings occurred and the American corporate rate).  Importantly, the other five nations have a much lower corporate tax rate than the United States.

To add further insult to injury, many of the most prominent U.S. technology companies did not exist or existed in a very different form when our tax code was last rewritten in 1986.  At the time, a company’s success was largely determined by business in the United States.  Today, success is determined by business all over the globe, from here at home to Europe, to the BRICs (Brazil, Russia, India and China), to other emerging markets like Africa.

For many technology companies, the majority of their profits are now earned overseas, ranging from 60 percent to 80 percent.  At the same time, the majority of their research and development, ranging from 70 percent to 90 percent, is done in the United States.  The fact is that many American high-tech, high-paying jobs are dependent upon their companies success overseas.

The answer to making America more competitive and to maintaining our title as the innovation capitol of the world is to lower the corporate tax rate and move to a competitive, market-based territorial tax system.  Advocating for both higher taxes and the continuation of a world-wide tax system are wrong for American jobs of today and particularly for American jobs of the future.

Dan Turrentine is TechNet’s Vice President of Government Relations & Business Development