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March 15. 2016

Washington Post Letter to the Editor: Build a tax code that keeps U.S. profits at home

Michelle Hanlon, the Howard W. Johnson Professor and a Professor of Accounting at the MIT Sloan School of Management, wrote the Letter to the Editor below, which ran in the Washington Post on March 14, 2016 in response to an article on foreign earnings of U.S. businesses.

The March 6 Economy & Business article, “U.S. companies stashed $2.4 trillion overseas in 2015, group says,” about the foreign earnings of U.S. companies, assumed that the profits of American businesses operating overseas represent lost taxes to the U.S. government.

The article used the wrong benchmark. We have to compare our tax system with those of other countries that are competing for business and jobs right now, not to the U.S. tax system of the past. The world has changed. The income earned abroad is already subject to local tax, but unlike nearly every other developed country, the United States imposes a second tax, at one of the highest tax rates in the world, when these profits are brought back to this country. As a result, the tax system discourages U.S. businesses from repatriating their earnings if they want to compete effectively in the global marketplace.

Our economy would be better served with a tax system that encourages companies to invest in the United States and allows them to successfully compete across the globe. We should follow the rest of the developed world and fix our broken tax code.

Michelle Hanlon, Acton, Mass.