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August 06. 2013

Financial Times: Think-tank urges US to switch to ‘territorial’ tax system

By James Politi

US companies would repatriate as much as $1.6tn – or the bulk of the cash they have stashed overseas – if America overhauls the treatment of international earnings in a sweeping reform of the corporate tax code, a Republican-leaning think-tank said on Tuesday.

The American Action Forum – led by Doug Holtz-Eakin, a former director of the Congressional Budget Office during the George W Bush administration – is trying to build the case for the US to switch to a “territorial” tax system that imposes minimal taxes on foreign earnings.

The US is an outlier among developed countries because it uses a “worldwide” system of tax that imposes levies on foreign earnings when they are brought back to the US of up to 35 per cent, the high statutory US corporate tax rate.

The AAF study – based on a survey of tax officers at the largest multinationals – suggests a switch to a territorial system could lead to the repatriation of between $1.1tn and $1.6tn – a higher amount than previously thought. Over time, this could lead to the creation of 3.5m jobs and boost US gross domestic product by $440bn, the AAF study concluded using the CBO’s methodology for calculating the economic impact of fiscal stimulus.

Read the full story at the Financial Times.