By Hal Bozarth
As American businesses struggle to recover from the recession, Congress will soon consider changes to the tax code that could seriously undermine any recovery. While we applaud lawmakers for recognizing that aspects of our federal tax system are not functioning, we urge Congress to be careful with a piecemeal approach to tax reform and to reject the proposed repeal of deferral, “check-the-box,” and foreign tax credits for American companies with operations abroad.
These three tax provisions allow American companies to structure their taxes in such a manner that they can compete effectively with foreign rivals. This is important because in some countries like France and China, their homegrown companies pay little or no tax; these tax provisions give American companies a level playing field in those markets. Having robust American businesses abroad benefits all of us—every dollar invested overseas generates more than $3.50 here in the U.S.
The worldwide American companies that would be hurt by repealing these tax provisions are the backbone of our economy. These aren’t fly-by-night tax shelters, but the leaders of our business community, employing more than 20 million people and indirectly supporting the jobs of tens of millions more.
For every American company with overseas operations, there are hundreds of small businesses that rely on larger companies for their survival. From dry cleaners and sandwich shops to car services and convenience stores, small businesses around our state depend on big businesses to fuel their success. Worldwide American companies also give millions of dollars and volunteer countless hours to their communities. Through volunteering, charitable giving, community development grants, and scholarships, these businesses contribute to everything from Little League teams to arts and cultural opportunities.
Here in New Jersey, major employers like Honeywell, DuPont, and Corning would all be adversely affected by the repeal of these tax provisions. In a worst case scenario, some companies could be forced to move all of their operations overseas, stripping the U.S. tax base of high-wage jobs and robbing this country of intellectual capital and the kind of entrepreneurial opportunities that make this country great.
This is not just a theory—when the United Kingdom instituted a similarly oppressive tax code, even the venerable Lloyds of London moved its operations out of the UK, forcing the British government to reconsider their tax policies.
Some proponents of this tax increase have referred to this proposal as “restoring fairness” and “closing a loophole,” but these characterizations are incredibly misleading. The tax increase that Congress is pondering would amount to more than $200 billion levied against American companies and would only help foreign competitors. Notably, more than ninety percent of the products produced by these American companies overseas are sold in local or regional foreign markets, so they do not compete with “made in USA” products.
We cannot afford to punish worldwide American companies who have successfully expanded their businesses abroad and risk losing the jobs and tax income associated with their prosperity.
As noted above, we appreciate Congress’ interest in reforming the tax code. However, we believe that a better approach to reform starts with a full study of the current tax code and the development of broad recommendations for reform that help businesses, workers, and our communities thrive. We urge New Jersey’s Congressional Delegation to support fundamental tax reform and reject those proposals that would harm the very companies we are relying on to lift us out of these difficult economic times.
Hal Bozarth is executive director of the Chemistry Council of New Jersey, Trenton.