International Tax Reform Comment Letter to House Ways and Means Committee - Why a Worldwide Full-Inclusion System is Far Better for Our Country and Society than a Territorial System

Abstract

I am commenting on the form that International Tax Reform should take. In brief, the Territorial System strongly lobbied for by the U.S.-based multinational corporations (MNCs) standing to benefit from such a system is not what’s best for our country or our society. It is bad tax policy in today’s environment where it is so easy for MNCs with their extensive resources to shift profits from the U.S. and into low-tax countries.

Rather than implementing a Territorial System such as that proposed in the October 26, 2011 Ways and Means Discussion Draft (W&MDD) or continuing our current Deferral System, our country, its people, and yes even our MNCs would best be served by implementing a Worldwide Full-Inclusion System (WFI System). Such a system would actually eliminate or severely curtail the strong motivation (even stronger under a Territorial System) that MNCs now have to shift profits out of the U.S. and into low-taxed countries, thereby achieving "double non-taxation". Profit shifting motivation disappears when achieving double non-taxation is no longer possible because there’s a current federal tax on all earnings and that tax cannot be eliminated through any tax schemes and creative avoidance.

So, this is what is needed: A taxation system that eliminates the present strong motivation to achieve double non-taxation through operating, owning assets, and bearing risks outside the U.S. These efforts, which shift profits and jobs out of the U.S., distort the business and investment decisions of our MNCs. International Tax Reform must put in place a new taxation system that will leave our MNCs free to make their business decisions based solely on business and investment factors such as location of raw materials and customers, employee wage rates, transportation costs, availability of qualified personnel, etc. Only the WFI System accomplishes this.

Keywords: territorial, full-inclusion, international tax reform

JEL Classification: H21, H25, K34, E62