Tax code a punch card in Pentium-chip world

The recent trend of positive job numbers — while good — do not alter the fact that the U.S. tax code is an albatross weighing down our nation’s economy. The code is a case example of outdated punch-card policies having a punitive impact in a Pentium-chip world. To achieve our economic potential and ensure that our children are more prosperous than their parents, it is imperative that we significantly upgrade our antiquated tax system.

No government document is more impactful than the tax code in determining the economy’s direction. Unfortunately, it’s a depressing read. The U.S. code paints a picture of a country with complex, chaotic and contradictory imperatives. While the code appropriately encourages investment in research and development, its system of taxing worldwide income punishes the same American-based global corporations that account for the bulk of U.S. R&D spending, exports and almost all outward direct investments. Every new job is critical, and chasing away America’s economic champions through punitive, complex tax policies makes zero sense.

Other nations have learned this lesson and retooled to be more competitive. This year alone, Canada, the United Kingdom and Japan are cutting rates; Japan and the UK became the latest countries to join the “territorial tax club,” avoiding taxing the foreign earnings of their home-grown industries. In fact, when Japan’s lower rates became effective earlier this month, the U.S. took over the mantle of having the highest corporate rate in the industrialized world and being one of a few outsiders to the territorial tax club — both to its significant disadvantage as a global competitor.

Japan, the UK, Canada, and China — among others — are making the decision to compete, and are adapting quickly to the reality that technology creates an environment for highly effective global collaboration where people can accomplish almost anything from anywhere at anytime. In such an environment, tax policy decisions really matter.

Make no mistake: the U.S. can compete and win in today’s hyper-connected, ultra-competitive global marketplace. The entrepreneurial energy at the heart of American innovation has yet to be fully replicated anywhere else. Our nation’s universities remain the best in the world, our legal system remains strong, and, by 2020, our population will be younger than both China and the Eurozone.

Moreover, the United States is home to a tech sector that is transforming the world. A recent review of 40 top American multinational tech companies found that they generate global sales in excess of $1 trillion, employ more than one million people with over half being U.S. employees, and have U.S. investments exceeding their U.S. earnings.

Tech is a success story that is driving transformative innovation in areas like mobility, “smart” energy, transportation and buildings, cloud computing, machine-to-machine communication, and molecular-level manufacturing that promise to create millions of new jobs and trillions in revenue.

Unfortunately, tech’s success pales in comparison to its potential, and our nation’s tax policies are holding us back. I know firsthand from my discussions with leading companies that corporate tax policy is a major driver of where to locate the next factory or facility, and the jobs that accompany it. These critical investment decisions are not a simple game of salary and supply-chain arbitrage.

Upgrading the tax code will go a long way towards reclaiming America’s global economic leadership. Many of the most prominent companies in our country, and certainly in the tech sector, did not exist or existed in a very different form when our code was last rewritten in 1986. Like it has in other major markets, an upgraded tax code must be simple, with lower rates and innovation incentives like a permanent R&D tax credit, and membership in the territorial club — all key determinants of economic growth.

This won’t be easy. The president and key members of Congress have offered proposals that demonstrate a shared commitment to making reform a reality. But getting from proposals to a final plan is going to take hard work. While we have concerns with some elements of these proposals, we stand with the president and Congress in our commitment to tax reform that makes us more competitive and a magnet for business investment.

For too long, U.S. tax policies have driven jobs and investment overseas. It is high time that American tax policies better benefit American workers, businesses, and communities. It’s time to bring investment home.

• Garfield is president and CEO of Information Technology Industry Council (www.itic.org).

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