As the tax reform debate in Washington develops, the argument against modernizing our international tax system seems to be based on some disturbingly narrow misperceptions.
The first is that U.S. companies have no business operating anywhere but in the United States. The second is that the global marketplace harms American workers when American companies serve customers in other countries.
To answer the question of why an American company would choose to do business both in the U.S. and abroad, a world map is a good starting point. Today, 95 percent of the world's consumers live outside the United States. As a result, if U.S. companies want to win in the global marketplace, they must export and do business where their customers live.
While the United States is a large market, it is also a mature one and grows more slowly than many developing countries around the world. Therefore, if a U.S. company wants to steadily grow, it must gain traction in these new markets.
Another inconvenient fact for isolationists who want commerce to stop at the U.S. border is that many products simply must be produced and serviced abroad. Food service, soft drink bottling, heavy equipment maintenance and other products and services demand on-the-ground operations.
And although there are some concerns to whether companies are pursuing international growth at the expense of their domestic workforce, the good news is that global trade is not a zero-sum game. Indeed, the true calculus reveals that internationally engaged companies benefit U.S. workers on a number of levels.
Winning on the global stage directly translates into winning for the American worker in terms of research and development, jobs, investment, compensation and more:
- For every dollar invested overseas, globally engaged U.S. companies invest $3.50 in the United States;
- For every job abroad, U.S. companies employ 2.2 workers in America;
- 84 percent of the research and development dollars spent by global American companies is spent in the U.S.; and
- The compensation for American workers employed by multinational companies is almost 19 percent higher than the average private sector compensation.
So as our nation continues to struggle with a stagnant economy, it is important to recognize the source of high-value, high-wage jobs and enact policies to keep and create more of these good jobs. Our current international tax system is a good place to start.
It's been more than a half-century since the U.S. undertook a bottom-up review of our international tax laws. In fact, they haven't been updated since 1963, when the U.S. accounted for 50 percent of the global economy and did not have any serious competition from other nations.
The U.S. now finds itself the only G8 economy that hasn't yet modernized its international tax laws in order to attract more investment. While America has stood still on reform, it has lost a number of U.S.-headquartered companies, untold investment and overall economic stature.
To strengthen American competitiveness in the global marketplace, the U.S. needs to enact a modern hybrid international tax system, similar to the one used by our trading partners, that would promote increased U.S. investment , while protecting America's tax base.
It's time to set aside the misleading rhetoric that demonizes the global operations of U.S.-headquartered companies. Because in the end, when American companies can make the investments needed to sell more of their products and win new customers around the world, it is our economy and workers who stand to gain the most.
The Let's Invest for Tomorrow (LIFT) America is a coalition of U.S.-headquartered companies, trade associations and economic stakeholders representing industries that are critical to the American economy. The coalition supports a modernized "Territorial 2.0″ Tax System that strengthens America's competitiveness in the global marketplace, promotes increased U.S. investment and protects America's tax base.