Business Roundtable is an association of chief executive officers of leading U.S. companies working to promote a thriving economy and expanded opportunity for all Americans through sound public policy.
Long-term fiscal health is a tangible indicator of effective governance and an essential aspect of an attractive business environment. Nations that manage their fiscal and monetary affairs responsibly are rewarded by the marketplace with low borrowing costs and strong currencies. Conversely, a growing and unsustainable debt burden can undermine confidence, increase business uncertainty, disrupt financial markets and increase government borrowing costs. If not addressed, large debt burdens will have painful economic consequences, including high unemployment, chronically weak consumer confidence and a slowdown in investment.
In 2011, U.S. companies faced the second highest statutory tax rate among the 34 members of the Organization for Economic Cooperation and Development (OECD). The U.S. rate was 39.2%, including federal and state income taxes, according to the OECD. With the scheduled reduction in Japan's corporate tax rate taking effect on April 1, 2012, the combined statutory rate in the United States will now be the highest among the OECD countries.
America used to have one of the lowest corporate tax rates in the world but, as other industrialized nations have lowered corporate taxes, in 2011 the U.S. combined corporate rate of 39.2% was the second highest among OECD (Organization for Economic Cooperation and Development) countries, 13 percentage points higher than the OECD average.
The Administration proposes to fundamentally rewrite the basic rules of international taxation that have been in existence for nearly 100 years in a manner that would severely disadvantage American companies and make U.S. workers less secure. The proposals would increase taxes by over $100 billion on American companies over 10 years.
The United Kingdom and Japan recently reformed their international tax systems to provide a permanent tax exemption for most foreign earnings of U.K. and Japanese companies. Now 26 of 34 OECD (Organization for Economic Cooperation and Development) countries employ a “territorial” tax system that does not tax the worldwide earnings of their global companies.
As many of the world’s major economies take steps to enhance the ability of their companies to grow and spur economic growth and job creation, proposed new U.S. international tax policies threaten to unfairly harm American companies and make U.S. workers less secure.
A major new tax hike on worldwide American companies – proposed by the Administration in its FY 2013 Budget – would repeal “deferral” for certain income derived from “intangible assets” used in overseas operations. Deferral was designed to provide a level playing field for U.S. companies competing with foreign-headquartered multinational companies in international markets.
The following resources support the findings and data described in other Business Roundtable fact sheets regarding deferral and other international tax issues.
Overseas operations by American companies expand the American economy by creating a demand for American products and services.
In a rare “controlled” experiment involving U.S. tax policy, the elimination of deferral for the American shipping industry provides clear evidence of the harm that can occur when U.S.-based international companies do not benefit from deferral. Fortunately, the recent reversal of the 1986 decision to eliminate deferral has initiated a rejuvenation of the American shipping industry and an increase in American shipping jobs.
Further limitations on deferral would endanger American jobs and lower American standard of living.
U.S. tax rules significantly affect the ability of American companies to compete in foreign markets. These rules include a provision known as “deferral,” which is a key pro-competitive international tax rule for American companies.