Coalition For Tax Competition Endorses Territorial Tax System

Center for Freedom and Prosperity
Press Release – 27 February 2002

For Immediate Release
Wednesday, February 27, 2002
202-285-0244
www.freedomandprosperity.org

COALITION FOR TAX COMPETITION ENDORSES TERRITORIAL TAX SYSTEM, URGES BUSH ADMINISTRATION TO SUPPORT PRO-COMPETITIVE REFORM

Link to letter: http://www.multiracial.com/letters/2002-02-26.html

The Center for Freedom and Prosperity, joined by more than 20 of the country’s largest and most influential free-market groups, asked Treasury Secretary Paul O’Neill to support a territorial tax system for corporate income. Based on the common sense notion that governments should tax only the income earned inside their borders, a territorial tax system for corporate income would dramatically boost the competitiveness of U.S. companies while fulfilling international trade obligations.

“It is time for the U.S. to junk our antiquated worldwide corporate tax system and replace it with a streamlined, simple territorial system. This reform will make U.S. corporations more competitive and it will stop companies from relocating their headquarters in other jurisdictions,” said Andrew F. Quinlan, President of the Center for Freedom and Prosperity.

International tax reform became a big issue after the World Trade Organization sided with the European Union and ruled that a section of U.S. tax law is an unfair trade subsidy. According to the Geneva-based institution, the United States either must repeal the relevant portion of the internal revenue code – which would mean a major tax increase on export-oriented companies – or the European Union will be allowed to impose as much as $4 billion of annual import taxes on American products. It is widely believed that this new protectionist burden most likely would fall on agriculture and aircraft.

Dan Mitchell, McKenna Senior Fellow at the Heritage Foundation, stated, “Worldwide taxation is bad tax policy, which is why every serious tax reform plan envisions a shift to a territorial system. But best of all, shifting to a territorial system will be sweet revenge against the tax-harmonizing bureaucrats in Brussels. The European Union launched this attack on America’ s fiscal sovereignty, thinking they would force U.S. lawmakers to raises taxes, and it would be poetic justice if the EU’s ploy resulted in a tax system that will further enhance America’s competitive advantage in the global economy.”

The Coalition letter states that territorial taxation has many benefits, including:

1. Pro-simplification – Worldwide taxation of corporate income does not raise much money, but it accounts for a huge share of corporate compliance costs. Complexity would be reduced if the United States taxed U.S.-source income and other governments taxed the income earned inside their borders.

2. Pro-tax reform – All fundamental tax reform proposals, such as the flat tax, the consumed-income tax, and various sales tax proposals, are predicated on territorial taxation. Such a system also is easier to enforce and would reduce tax evasion.

3. Pro-competitive – U.S. companies could more effectively compete against foreign companies, many of which are headquartered in nations with territorial tax systems, if they did not have to pay additional taxes on the income they earn overseas.

A complete list of the free-market groups can be found on the letter at the link below:

http://www.multiracial.com/letters/2002-02-26.html

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The Center for Freedom and Prosperity is an Alexandria, Virginia-based, 501(c)(4) nonprofit, nonpartisan organization that lobbies Congress and the Administration on tax competition, financial privacy and fiscal sovereignty.

For additional comments:
Andrew Quinlan can be reached at 202-285-0244, quinlan@freedomandprosperity.org
Dan Mitchell can be reached at 202-608-6224, dan.mitchell@heritage.org
Veronique de Rugy can be reached at 202-842-0200, vderugy@cato.org

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