Talking Innovation: A Market-Based Tax Solution to Job Creation

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President Obama and Governor Romney each have put forward plans to reform the corporate tax structure.  Many of their top advisors, key members of Congress, and a majority of the Simpson-Bowles Bipartisan Deficit Reduction Commission, among others, have recommended a shift to a lower corporate rate and a competitive, market-based international tax system.  But getting from policy ideas to actual law is a challenge.

ITI recently talked with U.S. Representative Pat Tiberi, the Ohio Republican who chairs the House Subcommittee on Select Revenue.  That’s the panel which will develop the foundation of any federal tax reform package.  We talked about the job-creating potential of tax reform, and how he sees the issue playing out on Capitol Hill. 

During the presidential campaign, we’ve focused attention on the commonsense Six Steps to Jobs, Prosperity, and Innovation as a blueprint for bipartisan progress on job creation.  One of the central tenets of that document is fixing the outdated corporate tax structure.

Consider these points:

  • The U.S. tax code is complex, chaotic, and contradictory, and it is costing America jobs.  The last major overhaul was in 1986.  The outdated code is an obstacle to American competitiveness.  Tech companies are trying to compete and win in a global marketplace where many countries are aggressively cutting their tax rates to attract new jobs and investments.  We need a world-class tax structure to compete in a worldwide market. 
  • To remain competitive with our trading partners, America needs a market-based tax system with a competitive rate.  The United States has the world’s highest tax rate and is one of the few developed countries in the world that imposes significant taxes on the foreign earnings of its domestically headquartered corporations.  We cannot continue to handicap our innovative, global companies and expect to remain the world’s leader in important sectors such as information and communications technology.
    • Within the OECD, 25 countries use these market-based systems.  The United States, along with only five other OECD countries (Chile, Ireland, Korea, Mexico, and Poland) use so­-called worldwide tax systems in which foreign earnings are subject to domestic tax when remitted to the domestic economy.  Importantly, the other five nations have a much lower corporate tax rate than the U.S.
  • The current U.S. tax system produces double taxation, eliminating any incentive that a company would have to bring its foreign profits home to invest here in America.  Under the current “worldwide” tax system, U.S. companies’ foreign earnings are initially taxed by the country where the profits are made, and then again by the U.S. government when those dollars are returned home. 
  • A competitive market-based system will result in new jobs and investments here at home.  Experts have noted that, properly structured and combined with a lower corporate tax rate, a market-based (or territorial) system would make U.S. companies more competitive, simplify the tax code, reduce compliance costs, boost real wages, and encourage more U.S. companies to invest their foreign profits here at home.  It would spark stronger economic growth and job creation, creating opportunities for businesses, large and small, to put new products on the market and hire people for new jobs across the country.

Check out the conversation, and be sure to visit TechElect for the latest analysis and insights from the campaign trail.

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