Manufacturers in the United States struggle to compete under a tax system with high tax rates, arcane international tax rules, and a significant compliance burden.
Since the last major reform in 1986, manufacturers in the United States have innovated, but the U.S. tax code has not. Now, manufacturers in the United States face the highest corporate statutory tax rate among developed nations, and rates for small manufacturing businesses can be even higher. In other words, we’re operating at a competitive disadvantage relative to manufacturers in other countries.
Emerson — a $14.5 billion manufacturing company — provides innovative solutions in industrial, commercial, and residential markets. We have over 80,000 employees and operations in more than 150 countries. Over the past three years, Emerson paid an average $1.8 billion annually in taxes worldwide, more than half paid in the United States, at an average effective tax rate of approximately 32 percent and a marginal rate of over 37 percent.
A key objective for manufacturers is a top federal statutory corporate tax rate of 15 percent, which would make manufacturers more competitive in the global marketplace and promote U.S. job creation and economic growth. It would make it much more attractive for companies to build operations in the United States instead of another country.
Small and medium-sized manufacturing companies often pay taxes at individual rates because of the way their companies are structured. These manufacturers urgently need tax relief. A lower tax rate will allow these businesses to stay competitive, retain and create jobs, and create opportunity in their communities.
Outdated rules for taxing international income represent another major problem. Emerson’s business is global — more than 52 percent of our sales in 2016 were outside the United States. As a U.S.-headquartered company, Emerson pays more in taxes on worldwide earnings than our foreign competitors.
This can sound complicated, but that is why it matters. Most developed countries have territorial systems and their global companies pay little or no tax when they bring foreign earnings back home. The United States has a worldwide system, meaning global U.S. companies generally are subject to taxes both in the foreign countries where they do business, as well as in the United States when they bring foreign earnings home.
This added tax burden is a disadvantage when U.S. companies are competing for global business. To improve U.S. competitiveness, any tax reform plan should include a territorial system, similar to those in other countries. A territorial system also will increase U.S. jobs and exports, improve the efficiency of supply chains and allow for the free flow of money back to the United States — to be reinvested in the United States.
Other key elements of a pro-jobs tax reform plan would include incentives for research and development — so that the United States stays on the cutting edge — as well as for making investments in new equipment and facilities.
Manufacturers want the United States to be the best place in the world to manufacture, create jobs and attract foreign direct investment. Tax reform that includes the components I laid out to Congress would deliver powerful boost to manufacturing and jobs in the United States. The time to act is now. We have the best chance in more than 30 years to advance tax reform, and for the sake of working men and women, we can’t squander this opportunity.
David Farr is chairman and chief executive officer of Emerson and chairman of the board of the National Association of Manufacturers.
Source: The Hill