American Exceptionalism of a Different Kind: Why the U.S. Needs to Modernize its International Tax System

This week, Americans are gathering to mark the anniversary of our nation's independence and to celebrate the special country we call home.

The uniqueness of the U.S. is often a source of pride. Unfortunately, in one arena we stand virtually alone, and our isolated position is causing our workers and businesses to fall behind those in other developed nations. Despite an overwhelming amount of evidence that our current tax system is outdated, we are clinging to a broken tax code that does not recognize how the global economy has changed in the last 30 years.

America still uses an outdated “worldwide” tax system that is triply ineffective:  Our international rules that tax the repatriation of foreign profits discourage companies from investing in the United States, collect little revenue from business income earned abroad for the U.S. Treasury, and are complex to administer.

Other developed nations have recognized this reality: 28 of the 34 OECD member countries and all other G-8 countries our closest and largest trading partners have adopted modern international tax systems with territorial features, and 15 of those countries have adopted this form of international tax system since 2000.

ACT believes that the United States deserves a modern, globally competitive tax system that puts American companies on a level global playing field, without adding a dime to the deficit. We should take the best ideas from the international tax systems across the globe and combine them with truly American reforms to create a modern hybrid international tax system that would protect our workers, protect our tax base, and help American businesses compete in the global marketplace. And by reducing our corporate tax rate to 25%, the average for other developed countries, we can make the U.S. a more attractive place for businesses to invest, grow and hire.

A modern hybrid international tax system will promote domestic manufacturing and innovation and encourage global companies to locate and retain their headquarters in the United States. And by eliminating the double tax on foreign earnings, we'll make it easier for companies to bring back some of the nearly $2 trillion held overseas and invest it in things like research and development, new plants, employee pension plans and growing their businesses at home.

So as we celebrate everything that makes America great this week, let's also remember that a country this special deserves a tax code that lets us compete effectively with the rest of the world.