On Thursday, a pair of Congressional hearings will focus attention on the critical need for tax reform. We hope the hearings will not only examine the problems with our current antiquated tax system, but also look at potential solutions.
At one hearing, Senator Carl Levin of Michigan will hear from several tax policy experts, government administrators, and business tax planners, including ITI members Microsoft and HP, on the challenges businesses face reinvesting their foreign earnings here at home. The topic gets to one of the core problems with the existing outdated U.S. tax code.
The U.S. currently operates under a worldwide tax structure that places American businesses at a competitive disadvantage with the rest of the world. Plainly, this structure creates a double-tax on the earnings of U.S. companies operating overseas – the first tax paid in the country where the profits are made, and the second tax paid when those earnings are brought home to be invested in workers, facilities, and products here. Most of our competitors do not face this kind of one-two penalty punch on global success.
The economic albatross effect of this approach has led business and economic leaders to call for a shift toward a market-based competitive tax system. And not just any leaders, but individuals President Obama himself asked to provide advice on how to restore the economic health of our country, including President Obama’s Council on Jobs and Competitiveness, the President’s Export Council, and the National Commission on Fiscal Responsibility and Reform. The Jobs Council noted that, as most other developed nations have adopted a market-based competitive system, such a move would encourage greater investments by American multinational companies here at home. Senator Max Baucus and Congressman Dave Camp, the Democratic and Republican committee chairmen who will write any tax reform plan that moves through the Congress, have expressed interest in seeing how such a plan can make both U.S.-based global companies and the U.S. economy grow and create jobs. A growing number of both Democratic and Republican members of Congress agree.
We have urged Senator Levin to use his hearing to focus on bipartisan solutions that will serve our national interests, rather than criticize law-abiding companies for following the same logic American families adopt each April – pay Uncle Sam what you legally have to pay. I suspect not too many heads of households think, “You know, we ought to pay more than we owe. Honey, let’s give the government an extra few thousand dollars this year.” Instead, families pay what they owe under the law, and so are America’s global companies. There are two key differences though: First, many of these companies spend millions to ensure they comply with the law and pay what they owe; second, many of these companies have IRS agents there on a daily basis to make sure these companies play by the rules.
The second hearing of note is a joint endeavor by the House Ways and Means Committee and the Senate Finance Committee. The two chairmen – Mr. Camp and Mr. Baucus – have recognized that they’ve got to work together on comprehensive tax reform.
With both the Ways and Means Committee and the Senate Finance Committee actively pursuing tax reform, it will be critical for Congress’s two tax-writing panels to continue working closely together. This is the third time this Congress that our two committees have convened a joint hearing, and I look forward to continuing the dialogue on these critical issues.
It has been more than 25 years since the last major tax reform occurred. The world has changed drastically in that time and America’s tax code hasn’t kept up. It’s time we had a tax code for the 21st century, one that can create jobs, spark innovation and expand opportunity. I look forward to working with Chairman Camp as we work on a balanced, common-sense plan to reform the tax code and create the jobs we need to improve our economy.
This is the right tone and a step forward toward reaching a bipartisan agreement on tax reform. It won’t be easy to achieve, but it will be impossible if the debate is more about demonizing America’s economic champions than finding solutions that drive American success in global markets and job creation here at home. It should be about replacing an antiquated system with a simple, fair, modern tax code that helps American companies to create jobs here at home.