Tax reform always seems to be on top of everyone's mind during presidential campaigns. Over the course of the last year, much has been said about the importance of reforming and modernizing our tax code, and once again there is hope in the air in Washington that 2017 will finally be the year we see the government undertake a comprehensive set of reforms that creates a more globally competitive tax system in the U.S.
Now that the election is over, it is important to remind lawmakers that tax reform is essential to ensuring continued economic growth. The U.S. economy has been recovering - albeit slowly - since the economic downturn of 2008, and a new set of forward looking tax policies may be just what the country needs to continue this recovery. Comprehensive tax reform will drive job creation, make our economy more attractive for investment, and make American companies more competitive around the world.
It has been over three decades since Congress reformed the tax code, and over 50 years since they conducted a detailed review of our international tax laws. The world has changed dramatically since that time, and our tax code has failed to evolve to meet the demands of a 21st Century global economy. While other countries have recognized the competitive advantages of lowering corporate income tax rate, we have not. The United States has the highest corporate tax rate among OECD nations, and the third highest in the world (only behind the United Arab Emirates and Puerto Rico). Although the rest of the world has seen reductions in the corporate tax rate over the last decade, the United States has not followed suit.
Both sides of the aisle agree that growing the economy and creating jobs need to be a top priority for the new Administration. The implementation of a competitive tax system with lower corporate tax rates should be the first, and most obvious action on a path toward achieving these goals. Lower corporate tax rates will boost investment, entrepreneurship, and productivity, and they will lead to higher wages and living standards among U.S. workers.
A competitive tax system should create incentives for companies to locate their headquarters, open more offices, and to produce more products for export from the United States, resulting in more jobs, more tax revenue, and a higher U.S. standard of living.
But a comprehensive reform of our outdated tax system should include more than lower corporate rates. Our companies are suffering because, under the current structure of U.S. international tax rules, American companies are taxed on worldwide earnings, whether earned in the United States or abroad. This system discourages U.S. companies from bringing their profits back to the U.S. because of the high taxes imposed on repatriated earnings.
Implementing a territorial tax system, similar to the one in place in most other countries around the world, would level the playing field for American companies with global business ventures by allowing them to move capital around the world as they see fit. A territorial tax system would also encourage businesses to invest the profits from international operations in the United States, and to locate company headquarters, new plants, and service locations within our borders.
The 115th Congress was sworn in 23 days ago, and President Trump was sworn in last week. Now is the time for Congress and the Administration to seriously consider the enormous benefits that a modern, forward-looking and business friendly tax code could bring to the people of this country.