Reform tax code, keep companies in US

As we shop for gifts this holiday season, we are also seeing some U.S. companies shop for new corporate homes. Congress should take note as corporate tax reform ­the answer to this shopping trend ­ looms on the sidelines.

The trend is a result of the punishing burden of a tax code that has made the United States the nation least supportive of business in the developed world. The base U.S. corporate tax rate is 35 percent, and states tack on an additional 4 percent. On top of that, the federal government levies an additional tax on profits earned overseas, amounting to a double tax. There¹s a trove of earnings ­ estimated at more than $2 trillion ­ sitting abroad because companies don¹t want to subject it to America¹s onerous double tax.

{mosads}America¹s corporate tax rate doesn¹t just affect balance sheets, shareholders and corporate executives. It means lower wages for workers and higher prices on the goods and services families buy. By contrast, according to the Tax Foundation in 2014, the average rate in Ireland is 12.5 percent, 18.6 percent in Europe and 20.8 in Asia.

Our extreme corporate tax rate has spurred American companies to seek to improve their tax luck by merging with companies headquartered in other countries, known as “inversions.” Since 2012, at least 20 U.S. companies across the spectrum of industry have reincorporated in more friendly nations, including the latest, Pfizer, in addition to Burger King and medical device company Medtronic.

In reaction, New Jersey¹s Assembly recently passed legislation to prohibit companies that use inversions from receiving new or keeping existing economic development grants or state contracts. In my book, this is a “cut off your nose to spite your face” response.

Inversions don¹t impact state taxes and may actually help state revenue if companies have more capital to hire, invest in the state economy and pay more dividends to investors. If such a measure prompts companies to flee the state, an understandable reaction, it could hit New Jersey¹s economy hard. Other states would be foolish to go down this road.

Companies, just like families, want to compete on a level playing field. Who would buy their Christmas presents at a mall that charged an extra 10 percent “Santa tax” on every item sold?

The bottom line is our outdated, sky-high tax system is crushing investment in the U.S. and our future economic growth. What¹s the answer? Corporate tax reform. This means simplifying the tax code and making it fairer for American businesses so that they can innovate, create more jobs and compete in the world marketplace. 

I¹m under no illusion that making the corporate tax rate more competitive will be easy. It¹s difficult to push any bipartisan reform through the cogs of Congress.  There is hope on the horizon.  A bipartisan proposal from Senate Finance Committee members Chuck Schumer (D-N.Y.) and Rob Portman (R-Ohio) tackles international tax reform. Among its elements, companies could repatriate foreign earnings at a reduced rate, which would send billions to federal coffers and allow for significant reinvestment of earnings into the U.S. economy. This is a step in the right direction. 

I urge my former colleagues in Congress to put tax reform that includes lowering the corporate rate and eliminating the double tax on companies on the front burner when they reconvene in the New Year. 

Until the U.S. government offers a climate where businesses can thrive, I expect companies will do exactly what American families do at Christmas time: look for the best deal. .

Hulshof served in the House from 1997 to 2009.