Senate Investigators Take a Misguided Look at Our International Tax System

By September 20, 2012Taxation

The good news today coming out of the Senate Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations is that Sen. Carl Levin (D-MI) recognizes that something is wrong with our international tax system. The problem though is that his focus is on companies that actually pay taxes and not the tax code itself, which is in desperate need of reform.

The basic problem is fairly simple: U.S. tax laws make it difficult for U.S. companies with worldwide operations to compete. Our “worldwide” system taxes income regardless of where it is earned, unlike most other developed nations that only tax income earned within their borders. As a result, U.S. multinationals generally have a higher tax burden than non-U.S. multinationals — a significant disadvantage when U.S. companies are competing against non-U.S. multinationals and local firms for business in a global marketplace. And, if U.S. companies cannot compete abroad, where 95 percent of the world’s consumers are located, the U.S. economy suffers from the loss of both foreign markets and domestic jobs that support foreign operations.

That’s why the NAM strongly supports moving from the current worldwide tax system to a territorial tax system structured to enhance U.S. competitiveness, not raise revenue. The current focus on tax reform presents a great opportunity to advance a permanent territorial system that would go a long way to improving the global competitiveness of U.S. manufacturers.

Let’s face it, territorial systems are now the international norm. The vast majority of our trading partners have a territorial system of taxing foreign income. Japan and the United Kingdom—two of the largest economies—recently abandoned worldwide taxation systems in favor of a territorial approach. Adopting a tax system that is not more burdensome than the tax systems applying to foreign manufacturing companies is critical to the ability of U.S. manufacturers to compete in the global marketplace. A competitive tax system will impact jobs at U.S. headquarters, increase exports from U.S. manufacturers and improve the efficiency of their supply chains.

Dorothy Coleman

Dorothy Coleman

Dorothy Coleman is vice president of tax and domestic economic policy at the National Association of Manufacturers (NAM). Ms. Coleman is responsible for providing NAM members with important information related to tax issues and representing the NAM’s position to Congress, the Administration and the media. An NAM spokesperson for tax policy issues, she coordinates membership coalitions; prepares testimony, reports and analyses; and responds to media inquiries. Before taking over as vice president of the tax policy department, she served as director of tax policy from April 1998 to April 2000.
Dorothy Coleman

Join the discussion One Comment

  • Lew Warden says:

    What nonsense! The US, with the largest consumer economy in the world, consumes only 5% of the world’s production?

    The fact is the corporations of the world will use any pretext of an argument to get out of paying taxes. But if they don’t pay taxes in proportion to their economic and financial activities, then individual tax payers and consumers must carry burdens that have become unbearable.

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