ACT Company Spotlight: Current Tax System Hampers IBM’s Global Competitiveness
ACT member companies have a presence in all 50 states and Washington, D.C., directly employing a combined 3.8 million Americans. ACT’s members export over $124 billion of goods and services, invest over $50 billion in domestic research and development, and purchase over $630 billion of supplies from 665,000 vendors, many of which are small businesses across the country.
But each company also has a unique story. Tax reform would boost the U.S. economy and spur growth – and that growth means companies like IBM can better compete and invest in its business and workers.
IBM has demonstrated its commitment to investing in the U.S. and creating much-needed jobs in a recovering economy, investing in America even during the economic crisis. Since 2009, IBM has established IT service delivery centers in Dubuque, Iowa; Columbia, Missouri; and Lansing, Michigan. Together, these centers have created over 2,000 American jobs. In March of 2013, IBM announced yet another IT delivery center for Baton Rouge, Louisiana, that will bring at least 800 jobs to the city.
Our tax code should encourage this type of growth, but our current tax system limits the ability of global companies to use overseas earnings to invest in America. And at the same time, our international tax system is putting U.S. firms at a significant disadvantage relative to their foreign competitors. Since 2002, IBM has invested over $16.5 billion in the United States. With foreign operations in over 170 countries, IBM generates significant cash outside the U.S. that could be used to fund domestic investment. However, the “lockout” effect of our outdated, worldwide tax system makes it more difficult for IBM to leverage its international reach in ways that could benefit the American economy. The U.S. should move to adopt an international tax system with hybrid features of modern international tax systems – meaning income would only be taxed where it is earned. Instead, the current tax system makes it expensive and, too often, impractical to bring foreign earnings home.
IBM’s competitors don’t face this barrier – for example, software and Information Technology companies that are headquartered in Europe can repatriate their foreign cash with no additional tax cost. These other companies can then invest more heavily in R&D or make other investments – and compete with IBM for important acquisitions, an integral part of IBM’s growth strategy. Foreign competitors from Europe and other regions that have adopted modernized hybrid international tax systems enjoy a financial advantage on U.S. deals because they have more freedom to use their foreign earnings.
With a combined national, state, and local rate of approximately 39%, the U.S. has the highest marginal tax rate among industrialized countries. IBM’s competitors are able to keep a larger share of their pre-tax earnings even as they are more easily able to repatriate their foreign cash. This puts IBM at a disadvantage when it comes to investment in R&D and domestic expansion – exactly the kind of investment our tax code should seek to encourage.
Domestic investment is what America’s economy needs. Our tax code should reflect that priority.