What is ACT and who is involved in it?
ACT is comprised of leading American businesses from a broad range of industries that employ millions of Americans and compete in the global marketplace. ACT members have joined together to work with Congress and the Administration to achieve bipartisan and comprehensive tax reform – for our economy, our workers, and our nation’s future.
What does ACT want to accomplish?
ACT is committed to working with Congress and the Administration to enact comprehensive tax reform that encourages economic growth, spurs job creation, and lets American businesses compete in today’s global economy. America’s tax system, which was last reformed in 1986, is broken and filled with outdated rules that penalize American businesses and workers. ACT supports enactment of a globally competitive tax system that:
- Reduces the top corporate tax rate to a competitive level;
- Joins the international community by adopting a modern globally competitive tax system that puts American companies on a level global playing field; and
- Is achieved in a fiscally responsible manner.
What principles does ACT support to achieve these goals?
ACT believes that a globally competitive tax system requires a reduction in the corporate tax rate to a competitive level and the adoption of a modern hybrid international tax system, which takes the best ideas from the international tax systems across the globe and combines them with truly American reforms that protect our workers, protect our tax base, and help American businesses compete in the global marketplace. ACT members believe that corporate tax reform should be revenue neutral. We believe all revenues raised from corporate reform should be dedicated to achieving these objectives and that taxes should not be increased on small businesses to pay for corporate tax reform.
Is ACT supporting any particular plan, whether from the White House or from a member of Congress?
Our coalition isn’t intended to press for one particular plan. We support comprehensive tax reform that reduces the corporate tax rate; joins the international community by adopting a modern globally competitive tax system that puts American companies on a level global playing field; and provides a globally competitive tax system through a balanced approach that protects the U.S. tax base and is revenue neutral. Both political parties now agree that our tax system is broken and needs to be reformed – that makes the prospect of comprehensive tax reform the best it has been in years.
What is the problem with the current corporate tax system?
America’s tax system, which was last reformed in 1986, is filled with outdated rules that put U.S. businesses and U.S. workers at a competitive disadvantage. We need to modernize and reform our tax code to promote American jobs, enable economic growth, encourage companies to invest and base their headquarters here, and put America on a level playing field in the global marketplace. International tax rules that are more closely aligned with those of our trading partners, coupled with reforms that encourage U.S. investment and protect American jobs, would help U.S. businesses compete abroad and invest more at home.
Is your group advocating for a territorial tax system?
Our coalition believes that we can take the best ideas from the international tax systems across the globe and combine them with truly American reforms to develop a modern hybrid international tax system that would protect our workers, protect our tax base, and help American businesses compete in the global marketplace. We believe that America needs an international tax system that is more in line with our competitors – a tax system that taxes active business income once where it is earned. Currently, America’s outdated “worldwide” tax system taxes businesses a second time when they bring their foreign earnings back home to invest in America. Nearly every other developed economy in the world has transitioned to a tax system based on the principles of a “territorial” system – under which active foreign business income can be brought home with little or no additional tax – and they have seen positive results. A leading UK tax advisor recently pointed to Britain’s reduced corporate tax rate and modern international tax system as being the reasons that more than 40 multinational companies have been looking to relocate headquarters to Britain, including some from the United States. To keep our domestic economy strong, the U.S. must also be an attractive location for companies to base their headquarters and invest.
You have called for tax reform that is revenue neutral. Why shouldn’t tax reform be used to raise revenue from corporations?
U.S. businesses currently pay the highest tax rate in the industrialized world. It is widely recognized that the corporate income tax hurts economic growth – indeed, a 2010 economic study by the OECD concluded that the corporate income tax is the most harmful tax for economic growth. Raising revenue from tax reform would only harm our economy and put American businesses at a competitive disadvantage in the global marketplace – resulting in fewer, not more, American jobs. That’s why Democrats and Republicans alike have called for tax reform that will reduce the corporate tax rate and modernize our international tax system in order to create growth. The best way to reduce our deficit is through economic growth – and that is something that cannot be achieved if our businesses face higher tax burdens than foreign competitors. Corporate tax reform that promotes economic growth by creating a climate for companies to invest in America both now and in the future will give American workers and businesses an opportunity to win on the global stage. Balanced reforms can increase economic growth, enhance our nation’s competitiveness, and be achieved in a revenue-neutral manner.
How would tax reform create jobs and economic growth?
America’s current, outdated tax system creates barriers that penalize American companies when they bring their foreign earnings back to the United States. Investments made in this country – whether by American or foreign businesses – pay the highest rate of tax in the industrialized world. Further, special tax breaks and preferences distort investment decisions and impede economic growth. None of these features is a prescription for growth at home. Our principles call for a comprehensive approach that will create jobs and economic growth by leveling the playing field with our international competition while eliminating barriers to growth and investment for American businesses here at home. Notable economists from both sides of the political aisle have stated that comprehensive tax reform will grow our economy and help create more American jobs.
How does tax reform support small businesses?
Small businesses are a vital part of the economy and deserve a tax code that is fair, simple and balanced. Economic growth is essential to expanding opportunities for all business owners and all Americans. Comprehensive tax reform should simplify the tax system for small businesses and not increase taxes on this vital sector of the economy to pay for corporate tax reform.
How does tax reform affect U.S. manufacturers and U.S. manufacturing jobs?
The current tax system works against American companies that manufacture at home. Under the current tax rules, even with a special manufacturing tax incentive, U.S. manufacturers pay a corporate tax rate higher than the average OECD competitor. A lower, competitive corporate tax rate would allow U.S. manufacturers to compete on a more level playing field against foreign manufacturers on sales to both domestic and foreign customers. A modern hybrid international tax system, aligned with the rest of the world, will also help put U.S. manufacturers on a level playing field with their foreign-based competitors in rapidly expanding global markets, resulting in greater U.S. exports and more jobs at home. A modern hybrid international tax system can be designed to promote domestic manufacturing and innovation, remove constraints on the free flow of capital to allow American companies to invest their foreign earnings at home, and balance protecting the U.S. tax base with allowing American companies to compete on a level playing field in global markets.
Some have voiced concerns that a territorial system would lead to outsourcing jobs. Are there things that can be done to prevent this?
Jobs are increasing overseas because of growing global markets, and when American companies succeed and grow in these global markets they also add jobs at home. With global markets representing 95 percent of the world’s consumers, success in these markets offers enormous potential for the U.S. economy. A recent study from the Tax Foundation showed that the adoption of a territorial system does not increase a country’s unemployment rate: most foreign investment represents new expansion, not the replacement or relocation of existing American jobs.
To increase U.S. jobs, the U.S. needs to become a more attractive place for companies to invest, base their operations, and compete globally. This can be accomplished by lowering the corporate tax rate, creating more competitive international rules, and developing protections against U.S. tax base erosion – all principles we support. Territorial systems are in place around the industrialized world, helping these countries gain jobs by retaining and attracting companies’ headquarters operations and increasing the competitiveness of their companies in global markets.
To address the concern of some policymakers that a territorial system would lead to outsourcing jobs, it is possible to design a modern hybrid international tax system with safeguards that would balance protecting the U.S. tax base with allowing American companies to compete on a level playing field in global markets. Our coalition believes that we can take the best ideas from the territorial systems across the globe and combine them with reforms that protect our workers, protect our tax base, and help American businesses compete in the global marketplace.
How is this Coalition different from the various other efforts around tax reform – such as LIFT and RATE?
Groups like LIFT and RATE are playing an important role in the effort to reform the tax code, and a number of our members also are members of these groups. We support the goals of both LIFT (a modern international tax system) and RATE (a lower corporate rate), and we look forward to working with them throughout this effort. ACT members believe that if we are to achieve real and meaningful tax reform, it must be comprehensive: reduce the top corporate tax rate; join the international community by adopting a modern globally competitive tax system that puts American companies on a level global playing field; and provides a globally competitive tax system through a balanced approach that protects the U.S. tax base and is revenue neutral. Comprehensive tax reform should simplify the tax system for small businesses and not increase taxes on this vital sector of the economy to pay for corporate tax reform.
Our members support both a lower corporate rate and a modern international tax system, and believe such reform should be revenue neutral.