Penn Wharton: Proposed Tax Hikes Would Create a “Meaningful Competitive Disadvantage” for U.S. Companies

According to the University of Pennsylvania’s Penn Wharton Budget Model, tax increases passed by the Ways and Means Committee on the income American companies earn abroad would harm their ability to compete with foreign-headquartered companies.

The Penn Wharton study found the bill’s changes to the U.S. minimum tax on foreign income (GILTI) would more than triple U.S. taxes on the foreign earnings of U.S. companies.

The United States is the only country in the world that imposes a foreign minimum tax on its own companies. The provisions in the Ways and Means Committee bill would tilt the playing field even further against U.S.-parented companies to the advantage of their foreign-based competitors.

“If the U.S. substantially adopts the House proposal, but OECD countries maintain status quo, U.S. multinationals would face a meaningful competitive disadvantage,” the study reads.

Even if other countries were to enact foreign minimum taxes along the lines outlined in a recent OECD political agreement — and it is far from certain when, if ever, they will do so — under the Ways and Means Committee bill American companies would still be subject to higher taxes on their foreign income than their foreign-based competitors. The U.S. tax would be levied on foreign income taxed at an effective rate of up to 17.4% under the Ways and Means bill, compared to 15% under the OECD proposal. Moreover, many important technical aspects of the OECD proposal also make it less harsh than the Ways and Means bill.

American companies can win as long as they compete on a level tax playing field. But if the provisions in the Ways and Means Committee bill are adopted, it will tilt the playing field even further against American companies and American workers, making it harder for them to succeed abroad.

Read the entire study here.

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Learn more about the Alliance for Competitive Taxation at their website here.