Letter to Secretary of the Treasury re: Territorial Tax System

February 26, 2002
Joint Letter to Secretary of the Treasury
Regarding Territorial Tax System

[PDF Version]

Coalition for Tax Competition

February 26, 2002

The Honorable Paul O’Neill
Secretary of the Treasury
Department of Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220

Dear Secretary O’Neill:

America’s system of taxing the worldwide income of U.S.-based companies needs reform. The current system, which taxes income corporations earn in other jurisdictions, is driving many U.S.. companies to relocate their headquarters in other nations.  Moreover, this taxing system makes it harder for U.S. firms to compete in global markets and efforts to address this problem — such as the FSC/ETI legislation – have been rejected by the World Trade Organization.

For these reasons, we urge the Administration to propose a territorial tax system for corporate income. Territorial taxation is based on the common sense notion that governments should tax only that income earned inside their borders.  This reform would dramatically boost the competitiveness of U.S. companies while fulfilling international trade obligations. Territorial taxation has many benefits, including: 

  • 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.
  • 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.
  • 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.
  • In today’s competitive global economy, taxing worldwide income hinders the competitiveness of American companies. Territorial taxation is WTO-compliant and is an important step to a simple and competitive tax system. It would be good tax policy at any time, and it is particularly desirable now that the economy is sluggish. We hope you will support this much-needed tax reform.


    Andrew F. Quinlan — President, Center for Freedom and Prosperity
    Daniel J. Mitchell — Senior Fellow, The Heritage Foundation
    Fred Smith — President, Competitive Enterprise Institute
    Grover Glenn Norquist — President, Americans for Tax Reform
    Lawrence Hunter — Chief Economist, Empower America
    David A. Keene — Chairman, American Conservative Union
    Steve Moore — President, The Club for Growth
    Kevin Hassett — Resident Scholar, American Enterprise Institute
    Eric Schlecht — Director of Congressional Relations, National Taxpayer Union
    Veronique de Rugy — Policy Analyst, Cato
    Tom Schatz — President, Citizens Against Government Waste
    Stephen J. Entin — President, Institute for Research on the Economics of Taxation
    Lewis K. Uhler — President, National Tax Limitation Committee
    Duane Parde — Executive Director, American Legislative Exchange Council
    Paul Beckner — President, Citizens for a Sound Economy
    J. Bradley Jansen — Deputy Director, Ctr. for Tech. Policy, Free Congress Foundation
    James L. Martin — President, 60 Plus Association
    Tom Giovanetti — President, Institute for Policy Innovation
    Karen Kerrigan — Chairman, Small Business Survival Committee
    John Pugsley — Chairman, The Sovereign Society
    Gary and Aldona Robbins — Fiscal Associates
    Richard Rahn — Senior Fellow, Discovery Institute
    Christopher Whalen — The Whalen Consulting Group
    David R. Burton — Senior Fellow, Prosperity Institute
    James Landrith — Editor & Publisher, The Multiracial Activist
    Charles W. Jarvis — Chairman, United Seniors Association

    * Organizational affiliations are included for identification purposes only.

    cc: Minority Leader Trent Lott
          Senator Charles Grassley
          Majority Leader Richard Armey
          Representative William Thomas
          Representative Phil Crane
          Dr. Glenn Hubbard
          Dr. Larry Lindsey


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