CPA Pushes for Trade-Competitive Tax Policies
Monday, February 04, 2019
The Coalition for a Prosperous America (CPA) is asking Congress to improve the federal tax system to promote U.S. trade competitiveness. In a letter to both the Senate Finance and House Ways & Means Committees, CPA pressed for consideration of both a destination-based Sales Factor Apportionment tax system (SFA) and a Strategic Goods and Services Tax (GST).
“The Tax Cuts and Jobs Act represented an important step forward and is supported by many of our members,” said Brian O’Shaughnessy, CPA’s Vice Chairman. “However, Congress now has the opportunity to dramatically improve the international trade competitiveness of U.S.-based companies and workers. Our proposals would tax foreign companies who profit from access to the U.S. market, eliminate taxes on profits and sales from exports, and neutralize the tariff-like impact of foreign VATs.”
CPA asked the tax-writing committees to adopt a destination-based system for taxing corporate profits called Sales Factor Apportionment. Currently, lawyers and accountants help foreign and multinational companies avoid taxes on U.S. sales. They do so through internal company bookkeeping tricks that make it appear as though the profits were earned in a tax haven like Bermuda or Ireland. The Tax Cut and Jobs Act’s extraordinarily complex rules reduced but did not eliminate this practice. The result is foreign companies still get more favorable tax treatment in many cases than American companies.
CPA explained in its letter that all businesses should be taxed based upon the proportion of their profits derived from U.S. sales.
“CPA members produce in America but often pay more taxes than their foreign competitors,” said Michael Stumo, CEO of CPA. “Under SFA, foreign competitors would no longer be allowed to sell in our market while hiding profits in tax havens. And our exporting members would be more competitive overseas because profits from exports would not be taxed.”
CPA also favors a strategic consumption tax, such as a Goods and Services Tax (GST), to improve America’s trade competitiveness. Currently, foreign governments charge U.S. exporters value-added (VAT) taxes—averaging 17 percent globally—at their borders. Most of these countries have reduced tariffs over the last 45 years—but replaced them with value added taxes. They use this new revenue to reduce other taxes and costs, and to fund national pension systems and health care.
The U.S. is virtually alone in not collecting value added taxes on imports.
"Other countries charge consumption taxes on U.S. exporters and rebate those taxes when their companies sell to us,” said Stumo. “Congress should fix this foreign trade advantage through an innovative and strategic consumption tax called a Goods and Services Tax. But Americans, especially the poor and working class, should not pay more taxes. Congress should therefore, at the same time, reduce or offset other domestic taxes and costs such as payroll taxes."
CPA suggested that a 13 percent GST could raise $1.4 trillion in revenue and fund a full credit against payroll taxes, reduce personal income taxes, and provide a credit for healthcare costs. U.S. companies would benefit from the cost reduction and receive a 13 percent GST rebate when exporting. Foreign companies would pay a 13 percent GST tax when bringing goods into the U.S.
Stumo continued, “Tax reform can reduce our trade deficit, drastically reduce complexity and put even more Americans to work in good paying jobs. Congress should tax the profits and sales of all companies selling here and eliminate taxes on exports. The combination of an SFA and a strategic GST is the most pro-American tax system Congress could devise.”