Amidst all the bluster, outrage, misunderstanding and outright falsehoods of the US presidential campaign, there is one major concern upon which almost everyone agrees: The US is losing jobs and investment to our global competitors.
But contrary to campaign rhetoric, the cause isn’t bad trade deals, tax loopholes or immigration—the problem is that the high US corporate tax rate encourages companies to move investment overseas, and to leave those profits there. Our foreign competitors are not “stealing” American jobs—we’re driving jobs and investment overseas ourselves with our high corporate tax rate.
Everyone in Washington has known for over a decade that our corporate tax rate is harmful and uncompetitive, but nothing’s been done because of political paralysis—and it’s about to get a lot worse if Congress and the White House continue to do nothing. Because other countries are coming after that money.
There’s an estimated $3 trillion to $4 trillion of US-based multinational corporation profits “stranded” overseas because bringing them back to the US would result in their being taxed a second time (because the US uses a “global tax” system) and at a very high rate—indeed, the highest corporate tax rate in the industrialized world.
Why can’t the US cut our corporate tax rate? Because the government is greedy, and refuses to adapt to the reforms of our global competitors. But the US government isn’t the only greedy one.
In recent years European newspapers have been filled with reports of companies like Apple, Starbucks, Google and Facebook not paying their “fair share” of European taxes, even though those companies have complied with the tax laws as they are written. And now in response to (or perhaps in coordination with) public outcry, the EU is formulating new rules designed to give European countries a bigger slice of the overseas profits of US multinationals.
The EU’s new Anti-Tax-Avoidance Package is “a pure naked revenue grab by the EU against US companies,” according to Ronald Dickel, Intel’s Vice President for Global Tax and Trade. Some estimates suggest EU countries would divvy up an additional $80 billion in new tax revenue through the scheme.
The US can no longer maintain a global corporate tax system with a rate so much higher than the rest of the world without suffering the consequences. It is time to reform the corporate tax system to stave off the EU's global tax grab. There is a price to pay for political paralysis, and the price is about to get a lot higher.