America’s tax system is out of date and not competitive. Last updated in 1986, the OECD finds U.S. business tax rates are now the highest in the world. Congress must enact reforms that lower the U.S. business tax rate and move the U.S. toward a territorial tax system.
Why is this important to Silicon Valley, California and the U.S?
A recent study by the Milken Institute, “Jobs for America,” concluded that reducing the U.S. business tax rate to the current average of Organization for Economic Cooperation and Development (OECD) countries would stimulate economic growth and create more than two million jobs in the U.S. by 2019.
The United States now has the highest statutory business tax rate among the major industrial countries in the OECD. Among other developed nations, only the U.S. taxes foreign income. This places businesses at a distinct competitive disadvantage since most foreign competitors are not required to pay a similar tax to their home countries. This particular aspect of the U.S. tax code poses real challenges when it comes to global investment decisions and the return of foreign proﬁts to the U.S.
Ninety five percent of the world’s consumers live outside of the United States. For U.S. companies to serve these markets and increase jobs in the United States, they must be able to compete internationally on a level playing field. In fact, 22 million Americans work for U.S. multinational companies while millions of other Americans are employed by the thousands by small and medium-sized companies that supply and service U.S. multinationals.
A reduction in the business tax rate to at least 25% must be accompanied with other proposed reforms such as reevaluating whether foreign tax credits are necessary given that they are utilized as an offset against the high corporate tax rate. The current U.S. tax rate of 35% provides such a large disincentive that few U.S. multi-national companies choose to bring foreign earnings home to the U.S.