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Can a 'framework' be comprehensive?

Feb 23, 2012
Carter Wood

In today's Business Roundtable statement on the President's Framework for Business Tax Reform, BRT President John Engler noted that the framework's failure to add a competitive territorial system actually went against recommendations made to President Obama by his National Commission on Fiscal Responsibility and Reform ("Simpson-Bowles") and the President's Export Council.

Then there's the President's Council on Jobs and Competitiveness, which -- as the American Enterprise Institute's James Pethokoukis reminds us in a clear and strongly argued column (with graphs!) -- reported this:

While most other developed nations have adopted territorial systems that exempt most or all foreign income from taxes when they are repatriated, the U.S. subjects all worldwide earnings to the corporate income tax when they are brought home to the U.S. This approach actually encourages U.S. companies to keep their earnings abroad rather than investing them here at home. Adopting a territorial tax system would bring us in line with our trading partners and would eliminate the so-called “lock-out” effect in the current worldwide system of taxation that discourages repatriation and investment of the foreign earnings of American companies in the U.S.

(Several representatives of Big Labor on the presidential panel disagreed with the conclusion, clearly anticipating a fight over the territorial issue, and thus we cannot really say the full council endorsed the findings.)

In his prepared statement, Treasury Secretary Timothy Geither said the President today "proposes comprehensive business tax reform." Can a 25-page framework really be considered comprehensive? Well, it's a start. BRT's Engler certainly welcomed President Obama's embrace of a lower corporate tax rate, even if the 28 percent would still place the United States at the top end of business taxes in OECD countries. Still, Geithner's message was solid:

The last time we fundamentally reformed the business tax code was more than 25 years ago. That was before the Internet, before the cell phone, before the rise of China and other emerging markets, before the latest expansion in global investment and trade, and before a global trend to lower corporate tax rates around the world.
 
The current tax code was written for a different economy in a different era. It needs to be reformed and modernized.

Agreed. But then, the PACE Coaltion -- to which BRT belongs -- issued a release critical of the international tax provisions in the President's proposal, and not just the absence of any territorial system. Excerpt:

The U.S. system of international tax is a relic of the 1960s, when the world was a much different place.

The proposed minimum tax on foreign income – which exists in no other advanced economy – would make it even more difficult for U.S. companies to compete in foreign markets. Most other nations are moving in the opposite direction, seeking to make their companies more competitive in international markets, as they recognize that growth abroad supports job growth at home.

The Tax Foundation added context to the new plan with a video, "Video: How U.S. Corporations Can Win at Home and Abroad."

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