August 1, 2006
Bill Archer on the Need for an Improved U.S. Corporate Tax System
For immediate release
Media Contact: William Ahern (202) 464-5101.
WASHINGTON, D.C.—The U.S. corporate tax system is an unnecessarily heavy drag on the economy, according to Bill Archer, a senior policy analyst at PricewaterhouseCoopers and former Chairman of the House Committee on Ways and Means. (Click here for full interview and transcript.)
Archer made his comments in a conversation with Tax Foundation President Scott Hodge, in the foundation’s new podcast series.
“One thing that most Americans do not understand,” Archer said, “is that when American firms operate overseas, they are also creating jobs back here in the United States, jobs that play off of those overseas operations. When we tax corporations too heavily, we hurt our ability to create jobs in the United States.”
Archer said the U.S.’s high tax rate on corporations is exacerbated by our unusual “worldwide” system, compared to the “territorial” approach, in which most nations only tax profits earned within their borders. The contrast between these two approaches becomes especially stark when large firms merge.
“A good example is Chrysler,” said Archer, “The tax code in this country forced them to become a German corporation rather than a U.S. corporation. And that is not in the best interest of the United States or jobs in this country. Our tax code is just screwed on backwards.”
Defenders of the U.S. system of worldwide taxation always cite outsourcing as the enemy they are fighting, but perversely, our current system actually promotes investment abroad.
“If American firms keep their foreign profits abroad, they can prevent double taxation,” Archer pointed out. “This encourages them to build factories overseas.”
The Homeland Investment Act proved how large the funds built up abroad were. In that 2004 tax bill promoted by Archer, the U.S. granted a special one-year window in 2005 for firms to bring money back to the U.S., not at the usual 35 percent rate but at a special 5.75% rate.
“Over 300 billion dollars has come back to the United States for effective use here,” said Archer.
On individual taxation, Archer criticized recent tax hikes for Americans living and working abroad.
“Those changes to section 911 of the tax code make it more expensive to hire Americans abroad. That hurts the U.S. because Americans employed overseas tend to order parts and services from the United States. This is, again, a totally backwards approach to what we need to be competitive in the world marketplace.”
The interview is Number 3 in the Tax Foundation’s podcast series. It’s available online at http://www.taxfoundation.org/podcast/show/1730.html.
The Foundation will publish a podcast each Tuesday, featuring an interview that sheds light on the nation’s tax system. Ranking Minority Member of the Senate Finance Committee Max Baucus will be the guest in the next podcast, Tuesday, August 8.
Best known for its annual calculation of Tax Freedom Day®, the Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.
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