The NAM believes that recent M&A activity in the international arena highlights the critical need for a comprehensive overhaul of the U.S. tax system to reflect the global marketplace of the 21st century. In short, the answer is comprehensive tax reform, not punitive tax treatment of foreign-owned companies or other “on-off” tax changes that have been floating around Washington this summer.
The latest proposal, unveiled yesterday by Senate Finance Committee member Chuck Schumer (D-NY), takes aim at interest deductions by non-U.S. headquartered companies. Unfortunately, Sen. Schumer’s proposal seems to disregard the very important role that foreign direct investment plays in the U.S. economy. Indeed, U.S. subsidiaries of foreign companies employee more than 2 million U.S. workers, over 17 percent of America’s manufacturing workforce The ability to deduct interest expense is a critical factor in a company’s decision to invest and create jobs in the United States
Foreign investment is particularly important in U.S. manufacturing, where one in every seven U.S. manufacturing workers is employed by foreign-owned firms in the United States. These firms contributed $649.3 billion to the economy in 2010, the most recent year with data. Foreign affiliates are major exporters and, in fact, accounted for nearly 18 percent of America’s global exports.
Because of the importance of foreign direct investment to the U.S. economy, it is critical that policymakers avoid imposing discriminatory taxes on foreign-owned companies. Congress should focus on tax policies that attract and maintain more capital investment, rather than discourage it.