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On Tuesday, the Senate Finance Committee is scheduled to hold a hearing that will examine a critical issue impacting the long-term health of the U.S. economy – our international tax system. Dubbed “Love it, Leave It or Reform It!” the committee promises to delve into the specific issue of corporate tax inversions, which describes a practice whereby companies reincorporate in a foreign country.
It is no coincidence that the hearing also takes place on the heels of U.S. Treasury Secretary Jack Lew calling for American companies to pursue so-called “economic patriotism” in their international business practices.
Inversions are obviously a trend our political leaders would like to mitigate, but herein lies the problem of Washington’s approach — too many politicians are hastily trying to treat symptoms of a diseased tax code that in actuality died long ago. And now, because public policy has not kept up, we find ourselves resorting to rhetorical pleas to stop the realities of an increasingly dynamic global economy.
True “economic patriotism” should mean a commitment by our own government — both Congress and the Obama Administration — to do whatever is necessary to ensure that America can once again become the best place in the world to invest and do business.
A modern international tax system, one designed for the 21st century, would create an environment where our economy can grow here at home and encourage U.S.-headquartered companies to expand into new markets abroad. This type of reform would directly benefit American workers and communities through increased investment, job growth and overall greater opportunity.
Unfortunately, our current international tax laws are as uncompetitive as you can get. According to the Tax Foundation, America today has fewer corporations than at any time since 1974. And while in 1960, 17 of the 20 largest corporations in the world were headquartered in the United States, today just six of the world’s largest companies call America home.
That’s no accident. It’s the consequence of years of inaction by Washington to recognize and respond to the changing nature of the global marketplace. In terms of tax competitiveness, America has fallen drastically behind trading partners like the U.K., Japan and Canada — all of which have lowered their corporate tax rates and instituted modern international tax systems.
The U.S. on other hand, is at the point where we now have the highest statutory tax rate in the world, one of the two highest effective tax rates, and worst of all, we stand alone among industrial economies with an international system that punishes American companies if they return their foreign earnings (approximately $2 trillion in private capital) to the United States to invest.
Our economy — and the American companies and workers who power it — can no longer afford to wait for Washington to act. If we still believe that the U.S. is the “land of opportunity,” then the true patriotic response to the crisis at our door, is to infuse the spirit of American competitiveness into our tax code and not take false refuge in the status quo or shallow speechmaking.
We’ll see which course our political leaders pursue — in the meantime our tax code will continue to betray our national interest.
Claire Buchan Parker is spokeswoman for the LIFT America Coalition.