U.S. Tax Policy Towards Foreign Operations Hamper International Competitiveness Of U.S. Multinationals

Abstract

This article compares U.S. taxation of foreign source income along with domestic tax incentives with that of other major industrialized nations such as the U.K., Canada, Germany, France, and Japan. The paper point out that U.S. tax policy towards the profitability and expansion of foreign operations ignores the economic realities of the 1990s. In addition, revenue-raising concerns of the U.S. tax policy appear to override international competitiveness considerations. The article calls on U.S. tax policymakers to (1) find ways to establish U.S. business presence in the emerging markets of Europe and the Pacific Rim; (2) reverse the declining trend in the U.S. share of exports of technology intensive products; (3) find ways to meaningfully lower the cost of capital to U.S. businesses; and (4) find practical solutions for both the budget and trade deficit.