By Senator Rob Portman (R-OH) -
Our out-of-date tax code is turning American businesses into economic refugees. In the last five years alone, over thirty-five American companies have inverted, buying smaller foreign firms—often for more than they are worth—and moving their headquarters overseas. Why would they do such a thing? Usually it’s to escape a broken, inefficient tax code that lags far behind those of our competitors around the world.
The corporate tax code last underwent a major overhaul in 1986, back when Ronald Reagan was president and Pete Rose was playing for the Cincinnati Reds. A lot has changed in 28 years, including the competitiveness of the global economy. Since that time, every single country in the developed world has reformed its code, giving its companies an advantage over American businesses. This strategy is working.
Consider the United Kingdom. They were losing companies so they lowered their tax rate to 21 percent, came up with a more competitive international system that taxes only income made in the U.K., and put in place a permanent research and development tax credit. The U.S., on the other hand, has a 39 percent corporate tax rate, an uncompetitive worldwide international system that taxes income made all over the world, and a research and development tax credit that is currently expired.
This has led to predictable results. Our own government has created an uneven playing field, one where foreign competitors have huge advantages over American companies. Because they pay less in taxes, these competitors can pay their employees better wages, provide better benefits, expand operations, and build bigger facilities. They can also undercut American goods and capture market share by charging less for their products. And, in many cases, they can simply buy up American companies and absorb them into international conglomerates.
Given this reality, Washington’s talk of “economic patriotism” and “corporate deserters” is out of touch. Instead of casting blame and pointing fingers at American companies, Washington deserves the blame for not giving American workers the tools they need. It’s past time to get to work fixing a code that is undermining America’s ability to compete.
We know where to start.
First, cut the corporate tax rate to at least 25 percent, the average rate among developed countries. Then finance that rate reduction by simplifying the code and stripping out some of the thousands of special preferences, carve-outs, and exemptions that allow some favored companies to pay little or no taxes at all. Finally, move to a competitive international tax system that taxes income where it’s earned, allowing American companies to better access the 95 percent of consumers that live beyond our borders and to bring back into this country over $1 trillion in U.S. company profits that are tied up overseas.
Who would benefit the most from corporate tax reform? It’s not the boardrooms, CEOs, and shareholders; it’s the American worker. In fact, the nonpartisan Congressional Budget Office estimates that more than 70 percent of the burden of corporate taxes is born by workers in the form of lower wages, fewer benefits, and reduced employment opportunities.
That’s the reality. When we talk about corporate taxes, it’s not about bottom lines and quarterly reports and treasury receipts. It’s about American workers and American jobs and what we’re going to do to make the U.S. an attractive place to create those jobs.
No one says that reforming our code will be easy, especially at a time of divided government. But we have done it before. In 1986, President Reagan reached across the aisle to work with a Republican Senate and a Democratic House to make tax reform a reality. They got it done because it was the right thing to do for the American people. We need that kind of leadership now.
Clever slogans and political games won’t make America the best place in the world to do business again, but tax reform is one of the common sense policy changes that would. Congress and the President must make it a top priority.
This piece was originally featured in Forbes