January 9, 2012
A New Way to Tax Corporations: Switching to a Territorial System
Washington, DC, January 9, 2012—Businesses in the United States face a strategic disadvantage when competing abroad due to the current structure of the U.S. tax code. Unlike most other countries in the world, the U.S. government taxes profits earned abroad on top of what companies pay to foreign countries. In order to spur greater investment and economic growth, the U.S. should follow the example of our closest trading partners and embrace a territorial tax system, according to the second in a new series of videos produced by the Tax Foundation.
The U.S. corporate tax system is out of step with the rest of the world and is unnecessarily handicapping the ability of American companies to compete with their rivals in places like Europe, China, and India,” said Tax Foundation president Scott Hodge. “Corporations should pay their taxes in the places they do business – not to governments around the world and then a second time to the U.S. Treasury.”
Washington’s goal should be to make the U.S. a competitive place both to do business in and do business from. The U.S. corporate tax system undermines both of these goals. Thus, the key to making the U.S. more competitive globally is to put our tax system on par with our major competitors. This means moving toward a territorial system for taxing foreign earnings, while also cutting the U.S. corporate rate.
The Tax Foundation video “Advantages of a Territorial System” is available online.
The Tax Foundation is a nonpartisan research organization that has monitored fiscal policy at the federal, state and local levels since 1937. To schedule an interview, please contact Richard Morrison, the Tax Foundation’s Manager of Communications, at 202-464-5102 or morrison@taxfoundation.org.