“Top Ten” Lists on Corporate Tax Reform

May 12, 2011

With the House Ways and Means Committee holding a hearing on the need for comprehensive tax reform, we have released two new studies: Ten Benefits of Cutting the U.S. Corporate Tax Rate and Ten Reasons the U.S. Should Move to a Territorial System of Taxing Foreign Earnings. Ways and Means Committee Chairman Dave Camp announced earlier this week that the hearing would focus on how comprehensive tax reform can help spur job creation in the U.S. and make American businesses more competitive in the global economy.

Tax Foundation President Scott A. Hodge, who wrote both of the new studies, said:

There is wide consensus among policymakers that the U.S. corporate tax system is out of line with most industrialized nations-and that America’s global competitiveness is suffering as a result. A corporate tax reform package that significantly lowers the federal rate and moves us toward a territorial system-in which foreign profits are taxed only once –would promote long-term economic growth and higher living standards for all Americans.

Both the Economic Recovery Advisory Board, chaired by Paul Volcker, and the National Commission on Fiscal Responsibility and Reform, co-chaired by Erskine Bowles and Alan Simpson, have made the case for cutting corporate tax rates as a part of a comprehensive reform effort. The Bowles-Simpsons report acknowledged that U.S. corporate income tax rates are significantly above the average for industrialized world, putting U.S.-based companies at a distinct competitive disadvantage.

Both lists are below. Full studies:

Ten Benefits of Cutting the U.S. Corporate Tax Rate

Ten Reasons the U.S. Should Move to a Territorial System of Taxing Foreign Earnings

Ten Benefits of Cutting the U.S. Corporate Tax Rate

1. Cutting the corporate tax rate will promote higher long-term economic growth.

2. Cutting the corporate tax rate will improve U.S. competitiveness.

3. Cutting the corporate tax rate will lead to higher wages and living standards.

4. Cutting the corporate tax rate will boost entrepreneurship, investment, and productivity.

5. Cutting the corporate rate lowers the tax burden on low-income taxpayers and seniors.

6. Cutting the corporate rate will lower the overall dividend tax rate and taxes on capital.

7. Cutting the corporate tax rate can attract foreign direct investment (FDI).

8. Cutting the corporate rate would lead to lower corporate debt and reduce the incentives for income shifting.

9. Cutting the corporate tax rate can reduce compliance costs.

10. Cutting the federal corporate rate can help the states compete globally.

Ten Reasons the U.S. Should Move to a Territorial System of Taxing Foreign Earnings

1. Parity. The U.S. system must be aligned with our global trading partners.

2. The experiences of Japan and Great Britain are lessons for the U.S.

3. The premise of the worldwide tax system – capital export neutrality (CEN) – is obsolete when subsidiaries have access to global capital markets and can self-fund their expansion with retained earnings.

4. The worldwide tax system violates the benefit principle of taxation.

5. The U.S. maintains a territorial tax system for foreign-owned companies but a worldwide system for U.S. companies. Mov­ing to a full territorial system will level the playing field.

6. The compliance cost of the current system is excessively high relative to companies’ foreign activities and the revenues raised from taxing foreign-source income.

7. Our current system traps capital abroad – the “lockout” effect.

8. Our high corporate tax rate and worldwide system makes it cheaper for companies to take on debt rather than use their own profits to fund their growth.

9. The current system dissuades global companies from headquartering in the U.S.

10. Eliminating deferral nearly killed the U.S. shipping industry.


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