Replacing Outdated Tax System Needed to Make US More Competitive

By Gregory J. Hayes, Chairman & Chief Executive Officer of United Technologies Corporation

April 12, 2017

Over the last 30 years, other countries have reduced tax rates dramatically, while the U.S. tax code has remained a relic of the past. Our current tax system makes U.S. companies uncompetitive around the world.

We cannot afford to squander the best chance we’ve had in decades to replace our outdated tax system.

Rewriting the U.S. tax code is an arduous task. However, the House blueprint proposed by Speaker Paul Ryan (R-Wis.) and Ways and Means Committee Chairman Kevin Brady (R-Texas) is a strong starting point for comprehensive tax reform that advances good economic policy.

As business leaders, we must coalesce around tax reform that is more globally competitive, fair and simple, recognizing that not everyone will get everything they want. A tax system that promotes these notions will drive significant growth in the U.S. for the benefit of everyone.

First and foremost, the U.S. tax system is uncompetitive, with the third-highest corporate tax rate in the world. In addition, unlike other developed countries, the U.S. taxes companies on their worldwide earnings at the same high tax rate. Our foreign competitors only pay taxes in the countries where the profit is earned, and at significantly lower rates.

These excessively high tax rates discourage American companies from investing in the U.S. Lowering the top marginal income tax rate from 35 percent to 20 percent and adopting a system that taxes companies based on where they sell their goods and services will eliminate the incentive for American businesses to move headquarters, jobs and intellectual property overseas. Lower rates mean more investment in the United States, which in turn will generate better jobs right here in the U.S.

For a global company like United Technologies, which earns approximately two-thirds of its revenue and profits outside the U.S., a territorial system, which taxes companies in the country where the profits are earned, provides opportunities to reinvest foreign profits in this country to create jobs through increased spending on research and development and factories of the future.

Second, the current U.S. tax code is littered with tax breaks and loopholes for particular industries or special interests.

There is no more egregious tax loophole than the special 23 percent tax rate for carried interest, available only to a select few. Paying taxes is everyone’s responsibility, no matter how good your tax lobbyist might be. The so-called Buffett Rule, which requires all high earners to pay a minimum tax rate of 30 percent, is also worth considering.

Third, the current U.S. tax code is too complicated — running 3,000 pages, with an additional 70,000 pages of regulations and a multitude of court cases to explain it. For United Technologies, this complexity results in a tax return of more than 17,000 pages.

United Technologies and companies like ours also spend tens of millions of dollars a year on services to navigate this convoluted system — money that could otherwise be spent on job-creating technologies, products and people.

This complexity is a direct result of individual provisions that lobbyists have persuaded Congress to adopt. A tax system that simplifies the code by focusing on a broader tax base, a lower rate and revenue neutrality is more important to the economy and business environment than these special interests.

Despite the challenges our tax code presents, the United States remains the leading economy in the world. Our people, our education system and our rule of law ensure we will always be a world leader.

United Technologies has more than 62,000 employees in the United States. We are proud that our companies pioneered the industries we are in — Otis elevators, Carrier air conditioners and Pratt & Whitney engines among them — here in America.

Congress and the president have a unique opportunity this year to pass meaningful, comprehensive tax reform. The House blueprint represents the best starting point for that reform. No one constituency will get everything it wants. However, cherry picking provisions in tax reform could undermine the overall effort and perpetuate the existing problems with our current tax system.

By enacting tax legislation that is more competitive, fair and simple, our government can ensure United Technologies and other American companies will continue to invent the technologies of the future here in the United States for years to come.