As America continues on the path to a full and robust economic recovery, business leaders are working alongside President Obama and Congress to forge a path forward, create new jobs, and usher in a new era of economic health.
Public policy can serve as an important catalyst for recovery or severely damage the momentum the economy seems to be gaining. It is important that we build on this momentum and establish a foundation for long-term, sustainable growth that will benefit American workers. During these fragile economic times, we need policies that foster growth; however, the current proposal to raise taxes on American companies that do business overseas by an estimated $200 billion over 10 years will do just the opposite.
Companies from almost all other industrialized nations are not required to pay taxes on international revenues to their home nations. Instead, they operate under territorial tax systems in which they pay corporate income taxes only in the country where revenues are earned.
In stark contrast, the U.S. employs a worldwide tax system -- earnings are taxed where revenues are earned, and then taxed again in the U.S. To compensate for this double taxation, which places American companies at a disadvantage with foreign rivals, the U.S. has created a system of accounting rules and deferrals meant to help maintain a level playing field. It is this system that is under attack. The current proposed changes to the tax code for American global companies would risk much of our economic recovery to date, putting in jeopardy our jobs, the ability of American businesses to compete, and the health of our economy -- something that benefits all of us.
Without deferrals -- the mechanism that balances U.S. corporate taxes against foreign tax systems -- American companies would have fewer dollars to reinvest back home. The new rules would also limit the flexibility of U.S. businesses to redeploy capital to geographic areas that show the most promise for growth (through the so-called "check-the-box" tax option) and eliminate vital foreign tax credits.
Why does this matter? Because overseas expansion supports thousands of companies and millions of jobs here at home. Administrative, financial, marketing, and even manufacturing jobs in the U.S. support -- and benefit from -- operations in other countries; in fact, research indicates that overseas expansion tends to correspond to domestic job creation.
On the flip side, restricting deferral, or the availability of foreign tax credits for that matter, would put real pressure on many businesses to not just trim expenses, including those associated with employing workers in well-paying jobs in the U.S., but also to compensate for lost revenues by increasing the prices of the goods and services they produce. In other words, the real cost of this proposed tax change would be an increase in wholesale and consumer prices -- something that would impact virtually every American. That is not something that the business community wants; we do not believe it is something that Americans in general or our elected representatives in our nation's capital want, either.
The business community understands that the federal government must attend to its balance sheet. But we also know that with some of the country's best minds engaged in determining how best to do that, it is a goal that can be accomplished without putting at risk the real economic gains that we, working with President Obama and Congress, have achieved in recent weeks and months.
Congress should reject these proposed tax changes -- an effective tax increase--in favor of sensible reforms as part of broader federal tax reform effort. Together, we can promote job growth here in the U.S., the competitiveness of American businesses, and the long-term health of our economy.