With corporate tax reform still very much on the table, advocacy group Alliance for Competitive Taxation (ACT) has weighed in with a reform plan that it deems internationally competitive and pro-growth, and capable of driving transformational change in the U.S. economy.
ACT is comprised of leading American businesses from a broad range of industries that employ millions of Americans and compete in the global marketplace. ACT members have joined together to work with the Congress and the Administration to achieve bipartisan and comprehensive tax reform – for our economy, our workers and our nation’s future.
The group has approached what it calls the Big Six — House Speaker Paul Ryan, Senate Majority Leader Mitch McConnell, House Ways and Means Committee Chairman Kevin Brady, Senate Finance Committee Chairman Orrin Hatch, Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn — about what it believes is a “benchmark for an internationally competitive tax system for the U.S. based on the tax systems of other developed countries.”
The ACT says that it believes “a globally competitive tax system will lead to greater U.S. investment and U.S. headquartering by global companies; higher wages, greater employment opportunities and increased living standards for American workers; and increased ongoing economic growth.”
Here are five key takeaways of what ACT proposes:
- A federal corporate tax rate of 20 percent or lower. ACT describes the “appropriate benchmarks” for an internationally competitive corporate tax rate as the Organization for Economic Cooperation and Development (OECD) average and the “best in class” of the G7 countries. Those rates have been decreasing, with the average OECD rate dropping more than 0.5 percent per year. The average corporate rate of the other 34 OECD members is 23.75 percent this year and will drop to 22.9 percent in 2020 with proposed and effective tax cuts.
- A territorial tax system aligned with other G7 countries. The majority (29) of the 34 OECD countries, which includes all G7 countries except the U.S., have territorial tax systems that exempt between 95 percent and 100 percent of active foreign business income earned by foreign affiliates of their global companies. ACT contends that a foreign minimum tax on the business income of U.S. companies would pose several adverse situations, including giving foreign companies an advantage over U.S. companies, increasing inversions and takeovers of U.S. companies, and increasing the taxes paid by U.S. companies to foreign governments.
- Tax Incentives for research and experiments. Research and experimentation are key to productivity growth yet, without government incentives, they aren’t adequately funded, ACT contends. Research incentives can improve U.S. economic growth, the group states. Although the research credit was made permanent in 2015, U.S. tax incentives for research rank 32nd from the top out of 41 OECD and other comparison countries, according to the OECD.
- Tax base. Setting a tax base that defines “income” in similar ways to what ACT considers the other best tax systems would allow a full deduction for ordinary and necessary business expenses. If the U.S. tightens restrictions on interest deductions that exceed those in other countries, U.S. companies would have an incentive to locate their debt-financed manufacturing plants in other countries, and foreign companies would have a competitive advantage over domestic companies in acquiring companies and assets located in the U.S., ACT states.
- Compliance costs are a hidden burden. According to the 2017 World Bank Doing Business report, the number of hours to comply with corporate income taxes in the United States ranks 35 out of 189 countries.
ACT says that tax incentives would be eliminated for a business owned by a foreign company, which would stop tax-motivated foreign acquisitions of U.S. companies and divisions, inversions and new start-ups outside of the U.S.
According to sourcewatch.org, Laura D'Andrea Tyson, a former chair of the Council of Economic Advisers during President Clinton’s administration, served as an economic advisor to ACT. Its coalition of more than three dozen major American business corporations include the Coca-Cola Co. and General Electric Co.
About Terry Sheridan
Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.