By Claire Buchan Parker, LIFT Spokeswoman -
Now that the election season is behind us and voters have made clear they want policymakers to break the gridlock and move our country forward, let’s hope Washington can finally replace campaign promises with political courage. With voters crying out for action on job creation and economic growth, reforming our country’s broken international tax system is a great place to start. Indeed, pre-election polling showed that 9 in 10 Americans agreed “the next Congress needs to update the tax code so that it works better for today’s families and businesses.
But two things stand in the way.
First, unlike almost every other industrialized nation, the U.S. international tax system levies a toll charge on American companies when they seek to return their overseas earnings to the U.S. Second, at 39.2 percent, our companies are hamstrung by the highest statutory tax rate in the developed world.
Add these two facts together and you get a losing equation for hardworking Americans and has led to nearly $2 trillion in private capital being locked out overseas. That’s real money that could be invested in our domestic workforce, increased research and development, factories and equipment, and economic growth right here in America.
Through comprehensive tax reform and a modern international tax system—like those recently adopted by our major trading partners —we can not only bring that investment home, but also watch it prosper. In fact, a recent study by the Berkeley Research Group shows just how fruitful that investment can be.
According to the study, transitioning to a modern system (i.e. a territorial tax system) would create roughly 1.5 million new U.S. jobs and add $208 billion to the GDP. And that’s just in the first year.Each year thereafter, we could count on creating 154,000 more U.S. jobs and see $114 billion in repatriations.
A strengthened economy. Greater opportunity. More jobs right here at home. Through commonsense and permanent reforms, we can achieve results that politicians on both sides of the aisle and Americans of every stripe can agree on. So where can Congress start?
One key factor to tax reform is the way our lawmakers calculate the costs and benefits of policies. Currently, Congressional tax committees use a model known as static scoring—a limited model that assumes the economy will be completely unchanged, regardless of how much the government taxes or spends. As the nonpartisan Tax Foundation describes it, static scoring follows the rule that “if you lower taxes by $1, you also lower revenue by $1.”
But in practice, that is a limited—and often wildly inaccurate—measurement that ignores the obvious: tax policies do have a broader effect on the economy. To use the Tax Foundation’s examples, “Most people would agree that raising $20 billion by closing targeted tax loopholes would likely have a smaller effect on the economy than a $20 billion increase in tax rates on capital investment.” Or, “If a tax proposal raises taxes on businesses and investment, then less money will be invested.” Static scoring takes none of that into account, resulting in narrow and incorrect projections.
We should instead be measuring legislation based on economic realities. The type of reality-based scoring championed by incoming Ways & Means Committee Chairman Paul Ryan (R-Wis.) does just this.
While most would agree that tax cuts do not return dollar-for-dollar in increased revenue, common sense tells us that the increased growth from more investment and jobs in the U.S. will generate at least some new revenues in other areas. Policy decisions affect behavior on a macroeconomic scale, and Ryan’s approach acknowledges this fact; static scoring does not.
It would be irrational for Congress to consider legislation without taking real-world circumstances into account. If the Congressional Budget Office and the Joint Committee on Taxation use reality-based scoring, Congress can evaluate all the relevant factors and get to the heart of comprehensive reform: creating an international tax system that lifts our economy for the benefit of all workers.
The time for lip service and campaign rhetoric is over. The time to let globally engaged, U.S.-based companies invest in their American workers and the American economy is now.