April 8, 2016
Texas Congressional delegation
U.S. House of Representatives
Washington, DC 20515
America needs corporate tax reform. U.S. corporations are taxed at the rate of 35 percent—the highest rate of any country in the developed world. On average, other industrialized countries tax corporations at only 25 percent. Moreover, American businesses are taxed not only on their U.S. profits, but also on their overseas profits as well. Most developed nations, including the U.K. and Canada, tax only domestic profits.
As you know, this imbalance has made the “tax inversion” – a process in which a U.S. corporation merges with a foreign corporation in order to move its nexus overseas – increasingly popular. According to Bloomberg “51 U.S. companies have reincorporated in low-tax countries since 1982, including 20 since 2012.” This form of tax avoidance is legal, legitimate, and a logical consequence of bad tax policy. As one analyst put it:
“Every year, U.S. firms lose a significant share of their profit compared to foreign firms they are increasingly pitted against in the global marketplace to higher U.S. tax rates. Additionally, the U.S. has an exceptionally burdensome international tax system that taxes income earned overseas at U.S. rates, unlike nearly every other country.”
For companies that retain their operations in the U.S. and support thousands of domestic jobs, our current tax system leaves them at a significant competitive disadvantage compared to foreign corporations, which threatens U.S. jobs and creates negative incentives to domestic economic expansion. In short, our current corporate tax structure undermines economic growth. All of the current candidates for president have recognized the issue but only the Republicans have acknowledged that tax reform is critical; the Democrats want to be punitive, as evidenced by President Obama and Treasury Secretary Jacob Lew’s efforts to use rulemaking authority to make inversions less financially appealing.
Rather than this punitive approach, comprehensive corporate tax reform is a significant but necessary undertaking, and we urge you to continue to make this issue a priority for the Ways and Means Committee. While we are doing our part in Texas to cut taxes, reducing the overall corporate tax burden and ending the taxation of overseas corporate profits are critical components of effective tax reform that will make remaining domestically-incorporated a more attractive proposition for our nation’s businesses.
Thank you for your time and consideration, and for your honorable service to Texas and the United States of America.