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.
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
Terrence Scanlon, President, Capital Research Center
* 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