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52 IRET Policy Bulletin 1 (1991)

handle is hein.taxfoundation/iretpbul0011 and id is 1 raw text is: June 28, 1991 _No. 52 COMPETITIVENESS AND THE U.S. TAXATION OF CORPORATE INCOME The current House Ways and Means Committee hearings on the issue of U.S. competitiveness indicate the beginning of serious Congressional concern over the effect on the U.S. position in the world economy of a cumulation of tax and other legislation adopted with strictly domestic political considerations in mind. From the tax standpoint, the failure to consider competitiveness had its culmination in the 1986 tax legislation, when the rules applying to business, and to international operations in particular, were wrung out to produce revenue to fund personal tax cuts, leaving in the aftermath a system that many regard as essentially unadministrable and economically damaging. The hearings announcement makes it clear that a fundamental reexamination of principle is invited. This is all the more welcome for being long overdue. It is a str-iking fact that the U.S. approach to the taxation of inter-national business oper-ations is unique in the world in important respects.. .this uniqueness alone should sound war-ning bells. What do other- nations know that we may have been missing? We must begin to come to terms with the overriding fact of cross border economic integration. Today U.S. firms' overseas sales exceed $1 trillion, or four times U.S. exports. Exports and imports account for nearly a fifth of our economy, about double the proportion of only two decades ago. (In some European countries, exports and imports are over 40% of the economy.) An increasing portion of exports and imports consist of materials, work in process, and capital goods, rather than finished products. Major industries now operate across national boundaries in the way they operate across state borders. (Imagine the condition of our economy if each state imposed a tax regime similar to our federal rules!) It is a striking fact that the U.S. approach to the taxation of international business operations is unique in the world in important respects, particularly regarding its impact on activities taking place Institute for IRET is a non-profit, tax exempt 501(c)3 economic policy research and educational Research organization devoted to informing the public about policies that will promote on the economic growth and efficient operation of the market economy. Economics of 1730 K Street, N.W., Suite 910 e Washington, D.C. 20006 Taxation (202) 463-1400 . Fax (202) 463-6199 e Internet www.iret.org