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November 11. 2013

New Study: International Tax Reform Will Create American Jobs and Boost Economic Growth

By ACT Staff

A new report highlights the importance of tax reform to the U.S. economy. The report, released by the Berkeley Research Group and titled Implications of a Switch to a Territorial Tax System in the United States: A Critical Comparison to the Current System, details the benefits of adopting a hybrid international system of taxation.

The United States is still using an outdated “worldwide” system of taxation that impedes American competitiveness in foreign markets. According to this new study, moving to a hybrid international system would increase the amount of foreign earnings that are repatriated to the United States by as much as $114 billion per year. These earnings would provide a significant boost to the American economy, increasing U.S. GDP by $22 billion annually and creating an estimated 154,000 new jobs per year.

At the same time, transitioning to this system would create significant short-term benefits. Currently, foreign subsidiaries of U.S. multinationals have accumulated approximately $2 trillion in foreign earnings that is indefinitely reinvested abroad. Under a transition plan similar to the one proposed by Representative David Camp, the study finds that about $1 trillion of these earnings would be repatriated. Firms with newly repatriated funds would increase investment even as shareholders increase their consumption spending. Combined, the report finds that this new spending would increase U.S. GDP by $208 billion or more and create at least 1.46 million new jobs.

As Washington seeks new ways to improve economic growth, this report adds to the significant and growing body of evidence that shows comprehensive tax reform will create jobs, grow our economy and help American businesses compete more effectively.

The report was authored by Dr. Laura Tyson, Dr. Eric Drabkin and Dr. Kenneth Serwin, and can be read in full here.