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Making the U.S. Tax Code More Competitive

Making the U.S. Tax Code More Competitive

More than 25 years since the passage of the Tax Reform Act of 1986, the U.S. appears to now be at a disadvantage with the highest corporate tax rate in the world and a subsequent lack of competitiveness.

According to a recent Politico column written by Representative Lynn Jenkins, a

More than 25 years since the passage of the Tax Reform Act of 1986, the U.S. appears to now be at a disadvantage with the highest corporate tax rate in the world and a subsequent lack of competitiveness.

According to a recent Politico column written by Representative Lynn Jenkins, a Kansas Republican, the time has once again come to level the playing field in the tax code, particularly with families and smaller businesses seeming to suffer while some large corporations do not pay any taxes.

As Jenkins notes, the "worldwide" tax code - which refers to corporations being taxed for their global income - was initially designed to compete against the Soviets, but is now severely dated. With the changing business landscape and emerging economies beginning to compete for jobs, Jenkins says the time is right for tax reform.

"The United States is one of the last major economies to tax companies on a worldwide basis, putting U.S. companies at a competitive disadvantage and hindering our economic growth and job creation," Jenkins writes. "Under our 'worldwide' tax system, U.S.-based corporations pay taxes in the country where they generate their income. Yet if they choose to bring those profits home to the U.S. — to invest in property, plants and equipment here — they are taxed again."

As a result, the representative notes that U.S.-based multinational corporations suffer from reinvesting back into the U.S. economy, with American companies also being placed at a higher risk of being acquired by foreign corporations.

In order to combat these issues, Jenkins suggests a change towards a new "territorial" tax system, which is used by most of America's major trading partners overseas. This, according to Jenkins, would force multinational companies to only pay taxes in the country where the revenue is actually earned, a change that would likely aid the economy, create jobs and put the U.S. in a better position to compete internationally.

"As we inch closer to comprehensive tax reform, our top priority must remain making the United States a competitive place to do business, domestically and internationally," Jenkins writes. "Our postwar tax system, with its high tax rates and worldwide double taxation, undercuts both these goals. With a level playing field, American workers, with their ingenuity and drive, are sure to win the battle in the global marketplace. When given the right tools to compete, the U.S. economy will continue to serve as a shining city on the hill."

The column by Jenkins comes just months after the chief executive officer of Coca-Cola said that a comprehensive tax reform was needed in the U.S. to even out the playing field for small, medium-sized and large businesses.

Muhtar Kent, the company's chairman and CEO, told CNBC in an interview that while Coca-Cola was still investing in the U.S., emerging markets such as China, India and South America are also competing.

As a result, Kent explained that local governments play a critical role in attracting companies to certain areas of the country.

"There's a lot of responsibility, I think, on governors attracting investment to provide the playing field and the right incentives and the right atmosphere in that state for pulling investments in," Kent noted.

The CEO added that there are a number of ways in which the U.S. can find the appropriate tax code to foster growth at home.

"Through new ways of doing business, through new networks, through a new way of engaging with your stakeholders, through innovation and through reinvention... You can't stay where you are. You either go down or you go up." 

Comments

Barrett Peterson
Title: Senior Manager, Actg Stnds & Analysis
Company: TTX
(Senior Manager, Actg Stnds & Analysis, TTX) |

We should consider a three rate structure at about 8, 15, and 25 percent. Eliminate LIFO over about ten years amortization. Deaccelerate depreciation a little. Tax foreign rarnings at ta 8 percent rate.

Barrett Peterson
Title: Senior Manager, Actg Stnds & Analysis
Company: TTX
(Senior Manager, Actg Stnds & Analysis, TTX) |

We should consider a three rate structure at about 8, 15, and 25 percent. Eliminate LIFO over about ten years amortization. Deaccelerate depreciation a little. Tax foreign rarnings at ta 8 percent rate.

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