Corporate Tax Reform

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TIA strongly supports comprehensive corporate tax reform. Tax reform will spur economic growth, create jobs and improve the competitiveness of the U.S. information and communications technology (ICT) industry in an increasingly global marketplace.

Principles

Lower Corporate Tax Rate: Corporate tax reform should lower the U.S. corporate tax rate permanently to a level that will enhance the international competitiveness of U.S. firms. At present, the U.S. tax rate for large companies is 35%, a level that is significantly higher than the OECD average corporate rate of 25%. This places U.S. companies (and U.S. exports) at a significant competitive disadvantage in the global marketplace, particularly in emerging high-tech fields such as ICT.

Territorial System: The United States should enact a competitive territorial tax system to eliminate the lock-out effect and allow foreign subsidiary earnings to be deployed in the U.S. with minimal tax friction.

Repatriation: Congress should establish a single-digit tax rate on accumulated unrepatriated foreign subsidiary earnings as a transition to a territorial tax system to encourage domestic investment and boost our nation’s economy.

Bifurcation: Since many American companies have already reinvested foreign earnings into overseas plants and equipment, a bifurcated system of taxation should be established that distinguishes between these hard assets and liquid cash reserves currently overseas. This would help prevent companies from diverting cash from other operations, liquidating assets, or borrowing to pay their tax liability. Both rates should be set at a single-digit level.

Preservation of Interest Deductibility: Corporate tax reform should not limit or repeal interest deductibility. The continued deployment of high-speed internet service, especially to rural and underserved communities, relies on debt-financed investments from service providers and manufacturers. Limiting or repealing interest deductibility will disproportionately harm capital-intensive industries, including ICT manufacturing, that need access to capital to invest in infrastructure and equipment.

Preservation of R&D Tax Credit: Congress should preserve and enhance the R&D tax credit which is essentially a “jobs credit” for U.S. based innovation. Although the U.S. pioneered the R&D credit, we now lag behind foreign competitors, ranking 32nd out of 41 countries assessed by the OECD in R&D tax credit generosity. Changes made in December 2015 to expand support for small and medium size enterprises are just now being implemented, with the IRS issuing its first guidance in March 2017. Since most countries have lower corporate tax rates, competitive territorial tax systems, and robust R&D incentives, it is important for the U.S. to preserve and enhance its own R&D tax credit.