A Treasury official warned against joining a “race to the bottom” on tax rates, saying that lowering the high U.S. corporate tax rate would not be sufficient to solve the country’s problems with taxes.
“I do not buy into the notion that the U.S. must willy-nilly do what everyone else is doing, because we have our own unique circumstances and fiscal challenges that need to be taken into account,” said Robert Stack, the Treasury’s top tax diplomat.
Stack, who delivered his remarks in a speech in Washington, was referring to efforts by members of Congress, particularly Republicans, to lower the U.S. statutory corporate tax rate from 35 percent, which is the highest among developed nations. In recent years, advanced economies around the world have lowered tax rates on corporations.
Stack referred to low corporate taxes, and taxes overall, by historical standards as a reason to be hesitant about lowering rates, ending taxation of worldwide income, and adding in other tax breaks, such as the “patent box” idea that has been suggested. The patent box would provide a lower rate for income from intellectual property, which can more easily be shifted out of the country.
Instead, Stack cited an “urgent” need to create a more stable international tax system, one in which multinational companies faced fewer incentives to shift their headquarters or operations from country to country.
Three major problems causing instability, he said, are that multinationals have held huge amounts of earnings overseas to avoid taxation back home, as much as $2.1 trillion by some estimates, shifting of intellectual property income, and the allure of tax havens. Those factors have led governments to look at rules forcing companies to pay their fair share.
“Any U.S. international tax reform that does not take a major step toward restoring stability, will prove to by a pyrrhic victory, no matter the rates agreed, the degree of territorial, or the presence or absence of patent boxes,” he warned.
Republicans, in contrast, have suggested that tax competition among countries is a good thing. GOP tax writers strongly favor a corporate tax rate as low as 25 percent or 20 percent and a “territorial” system that would end the practice of taxing income earning overseas.
