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September 26, 2003

September 26, 2003 | News Releases on Taxes

Use WTO Ruling as a Reason to PUsh Tax Reform, Analyst Urges Policy-Makers

WASHINGTON, SEPT. 26, 2003-The World Trade Organization has ruled that a provision of U.S. tax law gives American companies an "impermissible" subsidy. If U.S. lawmakers don't repeal the provision, the European Union can impose more than $4 billion in tariffs on American products, which would hit U.S. exporters particularly hard.

But something good can come from this ruling, says a new paper from The Heritage Foundation, if it prompts U.S. policy-makers to update the tax code.

As tax expert Daniel Mitchell points out, "U.S.-based corporations are taxed on their worldwide income, and the damage caused by this misguided policy is compounded by America's punitive 35 percent corporate tax rate, the second highest in the developed world." This, he says, puts Americans and U.S.-based businesses at a competitive disadvantage.

Mitchell encourages lawmakers to "junk America's worldwide tax on corporate income and shift to territorial taxation, the common-sense notion of taxing only income earned inside national borders." He says doing so would:

· Create a level playing field, by allowing American companies to operate under the same rules as many foreign companies do.

· Foster competitiveness, by removing the second layer of taxes that many American companies must pay.

· Simplify the tax process, since American companies would no longer need to spend time and money tracking their overseas income and determining their tax liability in the United States on that income.

The WTO should have no authority to interfere with the tax laws of sovereign nations, according to Mitchell. Nonetheless, Mitchell says, "if lawmakers use the ruling as an impetus to improve the tax code, American companies will become more effective competitors, and the EU will regret its attack on our fiscal sovereignty."

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