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February 24. 2015

ACT Adviser Dr. Laura Tyson Addresses Need for Tax Reform at Senate Finance Committee Hearing

Feb. 24, 2015 – Washington, D.C. – Today, Dr. Laura Tyson, an economic adviser to the Alliance for Competitive Taxation (ACT) and former Chair of the Council of Economic Advisers under President Clinton, testified on her own behalf before the Senate Finance Committee on tax reform and its ability to support stronger U.S. economic growth and higher wages for American workers.

Dr. Tyson’s written testimony highlighted the outdated nature of the U.S. corporate tax code. “Our corporate tax system was designed for an economy in which U.S. multinational companies earned most of their revenues at home, international competition was relatively unimportant, and most corporate profits were produced by tangible assets, such as machinery and buildings,” she said. “This is not today’s world.”

Dr. Tyson’s testimony also emphasized the need for tax reform due to the competitive effects on U.S. companies. “Our corporate tax system makes it harder for U.S. businesses – small and large – to compete with foreign companies, and reduces the competitiveness of the U.S. economy as a place to do business and create jobs.”

The Obama administration’s proposed foreign minimum tax would be counterproductive, she argued. “Adoption of a minimum tax of this magnitude and structured in this manner would harm the global competitiveness of American companies that earn a large share of their income in global markets…U.S. companies would be at a competitive disadvantage in acquiring foreign companies with desirable intellectual property” as a result of this policy, she said. “…existing U.S. companies with such property would become attractive targets for foreign acquirers and would have even stronger incentives to move their headquarters, their R&D and their future intellectual property to lower-tax foreign locations with territorial systems.”

She emphasized this point in her oral testimony. “We are continuing to make it less and less attractive for these activities and assets to remain in the United States,” she told the committee. “So if you are an entrepreneur, an innovator starting something new, and thinking about: where are you going to incorporate? Where are your real markets? …The tax disadvantages of a very high statutory rate, and a non-territorial system, perhaps with a minimum tax attached to that, is basically an incentive to not incorporate here.”

Dr. Tyson’s written testimony outlined the two key components for successful tax reform: setting a competitive domestic corporate income tax rate and adopting a hybrid international system of international taxation.

Dr. Tyson concluded: “It is time for another comprehensive corporate tax reform that, without increasing the budget deficit, reduces the tax rate, broadens the tax base, makes the corporate tax system simpler and more efficient, and adopts a hybrid international system with effective safeguards to protect the U.S. tax base.”

Click here to view Dr. Tyson’s written testimony as submitted for the Committee record.