Reform the obsolete tax code to increase job-creating investment

Foreign direct investment has always been an important part of the U.S. economy but recently these investments have slowed. This is one more sign of the precarious nature of our economic recovery.

For example, from 2011 to 2012, foreign direct investment (FDI) inflows into the United States fell 28 percent and are down more than 40 percent since 2009. This means fewer funds for manufacturing plants, producing research and development facilities and supporting American jobs.

ADVERTISEMENT
Our leaders are aware of this problem and as a result, we are hearing more calls for ways to lure these investments to American enterprise.

On October 31 President Obama made clear how important a priority attracting jobs back to America is for his administration, pledging that “officials at the highest levels, up to and including me, are going to do even more to make the case for investing in America.”

Attracting investment to the United States has bipartisan support. Sen. Bob Corker (R-Tenn.) also expressed his support for more investment in America:

“If we want the U.S. to be the very best place in the world to do business, we need to take a close look at what we’re doing right, what we’re doing wrong and how we can eliminate barriers that diminish investment in the U.S,” he said.

Such bipartisan awareness of the problem is gratifying, but now America needs to make this case not only with words, but with action. Fortunately, leaders in both parties agree that a big part of the problem is our obsolete tax code. Today, we can see a solution that could start reversing the trend right now – comprehensive tax reform.

The unemployment rate is still over 7 percent as we still struggle to recover from a financial crisis and recession, leaders of all stripes have said job creation and America’s economic growth is their top priority. Now is an opportunity for them to address it. A study by the law firm O’Melveny & Myers found, “foreign companies have accounted for five to six million U.S. jobs over the last decade.” FDI’s impact on the economy cannot be understated and it must be protected and increased. Even grown. But given the direction we are headed, the amount of foreign investment America enjoys is threatened by the out-of-date corporate tax code.

We know the competition for this investment is fierce. U.S. companies and workers accept that, as we strongly believe that with a level playing field, we can compete with any country in the world. However, America’s out of date and internationally uncompetitive tax code acts is serving as an impediment to growth and investment. Our corporate tax rate of 35 percent is the highest among developed nations and incentivizes companies to move abroad to more hospitable tax regimes.

O’Melveny & Myers’ research found many countries are intentionally reducing their top statutory income tax rate “as a direct way to influence FDI decisions by foreign investors.” Not only smart policy, but effective as well.

Our political leaders are already well aware of this. As things currently stand, why would an overseas investor want to open a company in the United States, with a corporate tax rate ten full percentage points higher than the international average, and then face a myriad of tax complications which force companies to put more resources into tax compliance and not towards the bottom line?

This is the time. A few days ago Treasury Secretary Lew said that we now  “have a real opportunity ahead to seize the mantle of tax reform and establish a simpler, fairer, and more competitive business tax system in the United States.”

Let’s do that. In order to create jobs, grow the economic and increase investment in America our leaders should come together now and seize the moment to pass bipartisan tax reform.

Pinkerton and Kamarck are co-chairs of the Reforming America's Taxes Equitably (RATE) Coalition.

More in Economy & Budget

Public investment – minus the politics

Read more »