The worst tax avoidance: Not pursuing comprehensive reform

The problem with current U.S. international tax rules is that they punish U.S. companies when they bring their profits home, thus creating an incentive to leave earnings overseas.  For this reason, it is estimated there is nearly $2 trillion in foreign earnings currently locked out of the U.S. economy.  This makes it harder for American companies to invest back home and hurts our economy, particularly in terms of job creation, research and development, and plant expansions.

Worse, our arcane system of taxation coupled with high tax rates creates an incentive for companies to pack up and leave.  In fact, an increasing number of U.S. companies have moved or announced plans to move their headquarters abroad.  Between 2009 and 2012, 10 major companies announced plans to shift headquarters off U.S. soil – nearly double the number for the period from 2004-2008.

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So as President Obama concludes his most recent G-8 Summit, it is informative to look at how similar tax challenges were faced by our trading partners.  Their response was to modernize their laws to welcome foreign earnings back home with minimal barriers.  They have reformed their tax systems and are continuing to make the necessary adjustments needed to attract investment instead of attracting acquisitions from abroad.

Subsequently, the U.S. can learn from the experiences of our trading partners to best calibrate a system of international taxation that is most effective for the American economy. But at this point, certainly no one is looking at the U.S. as a model; we are now the only member of the G-8 that has not yet modernized its international tax system in an effort to better compete around the world and attract more investment back home.

Luckily, there is relief in sight.  The status quo causing these problems is being scrutinized by Congress’s tax writing committees and there is growing agreement across party lines that reform is imperative.  The careful examination of our tax code over the last few years has revealed where we can update our system to modern global standards, as well as implement common sense safeguards that protect the U.S. tax base.

It’s time for the United States to take a honest look at our place in the global market, continue earnest efforts to reform our international tax rules, and finally fix the broken tax code.

Buchan Parker, former White House Deputy Press Secretary for George W. Bush, is spokeswoman for the LIFT America Coalition.