Washington DC – Calling U.S. international tax rules “out of step” with other major industrial countries, the National Foreign Trade Council (NFTC) today released a new analysis of international tax policy, urging Congress and the Administration to update tax laws that are putting U.S. business at a competitive disadvantage.
The release of International Tax Policy for the 21st Century, marks the conclusion of the NFTC Foreign Income Project, its analysis of the international tax policies of the U.S. begun in 1997. The report lays the groundwork for a reevaluation of U.S. international tax rules, which are adversely affecting the competitiveness of U.S.-based companies with overseas operations. Today’s report also includes specific policy recommendations to address the key issues discussed in the analysis sections of the report.
“We are dealing with 40-year-old tax laws that were written at a time when the global economy was a substantially different beast. Many of our key rules were put in place when the U.S. was still on the gold standard. In 1962 when some of the rules were designed, 18 of the 20 largest multinational corporations (ranked by sales) were U.S. headquartered, and by the mid-1990s that number had dropped to eight. Current law was established to discourage U.S. companies from entering into foreign operations. Today’s global economy, however, virtually requires major corporations to establish foreign operations just to remain competitive,” said Fred F. Murray, Vice President for Tax Policy, National Foreign Trade Council. “The issue for policymakers is whether the international tax policy of the Kennedy Administration remains appropriate as we enter the 21st century. In our view the answer is clear, the world’s economy has changed drastically, and it is high time to re-evaluate our international tax policies.”
NFTC was joined in releasing the study by key Members of Congress, including Senate Finance Committee Chairman Max Baucus (D-MT) at a U.S. Capitol press conference.
“We are very grateful to Chairman Baucus and Senator Hatch, and to Chairman Houghton and Congressmen Levin and Johnson for their work as they prepare to introduce the International Tax Simplification for American Competitiveness Act of 2002. The NFTC applauds their work to construct a vehicle for the further consideration and ultimate passage of a number of these reforms. This bill would address serious problems. In addition, provisions of the bill would significantly reduce the amount of information required to be accumulated, processed, and stored by our companies and by the government. Again, we congratulate you on the introduction of this important legislation. We look forward to working with you and the other members of the Congress in the consideration and enactment of it,” added Murray.
The major components of the NFTC analysis include a review of the history of the two key components of U.S. international tax policy, Subpart F and the foreign tax credit; a comparison of the U.S. rules with comparable regimes adopted by major trading partners; and an evaluation of the economic and other policy arguments that have been advanced in support of the current structure of Subpart F and the foreign tax credit. The report concludes that changes to these rules are long overdue.
Murray pointed to the fact that “among the United States’ major world trading partners, no other country taxes the foreign income of its companies as aggressively has the United States.”
“With a U.S. economy that is now less dominant in foreign markets, but at the same time more dependent on those markets, U.S. international tax rules that are out of step with those of other major industrial countries are now more likely to hamper the competitiveness of U.S. multinationals than was the case in the 1960s. We cannot afford to remain ‘neutral,’ when our competitors are not,” Murray concluded.
The National Foreign Trade Council is an association of businesses founded in 1914. It is the oldest and largest U.S. association of businesses devoted to international trade matters. Its membership consists primarily of U.S. firms engaged in all aspects of international business, trade, and investment. Most of the largest U.S. manufacturing companies and most of the largest U.S. banks are Council members.
Contact: Eric Thomas