Cesar Conda and Brian Reardon say America’s tax code is punishing US corporations for producing at home:
In 2005, 137 nations accounting for 94 per cent of trade with the US had some form of border-adjusted taxes on manufactured goods and services. By contrast, the US has direct taxes, such as the corporate income tax, which is precluded from being refunded on US exports or assessed on imports under World Trade Organisation rules.
The net effect is an unfair disadvantage for US companies and their staff, as the goods they produce and export are hit with taxes abroad, while foreign goods coming into the country are not. The additional embedded tax burden for US companies exporting goods is at least $100bn annually.
We must fix the US tax code so that American manufacturers can export more goods and services, not more jobs. The challenges of moving the US corporate income tax toward a border-adjustable system are sizable, but they can be overcome. Two stand out: WTO rules prohibit border adjustments of direct taxes and America’s corporate income tax is not readily border adjustable. These challenges suggest a two-front attack. First, the US must aggressively engage the Europeans to repeal the distinction between direct and indirect taxes… Second, Congress should move our corporate code towards a consumption-based tax…
For free-trade politicians, promoting tax-relief for American-made goods will help stem the growing tide against free trade and globalisation among voters. Without a proactive trade agenda, we are in grave danger of enacting protectionist policies proven in the past to hurt workers and industry alike. On the other hand, promoting a border-adjustable corporate tax allows pro-trade candidates to offer a workable, proactive and populist response to the ongoing decline in US manufacturing jobs.