The Coalition for a Prosperous America (CPA) joined today with several prominent progressive scholars, sent a letter (linked here) to Congress urging adoption of a smart, territorial corporate income tax called sales factor apportionment (SFA). While territorial taxes are typically associated with political conservatives, the letter reveals a significant opportunity for cutting edge corporate tax reform which can appeal to both the left and the right.

The letter was signed by Daniel Alpert (The Century Foundation and Westwood Capital), Marshall Steinbaum (Roosevelt Institute), Brad DeLong (University of California, Berkeley), Dean Baker (Center for Economic and Policy Research), Robert Hockett (Cornell School of Law), Gabriel Zucman (University of California, Berkeley), and Michael Stumo (Coalition for a Prosperous America). It stated:

"Sales factor apportionment (SFA) is, in our view, the best way to tax all firms - domestic, multinational and foreign - fairly in an integrated world economy."

Michael Stumo, CEO of CPA: "Our CPA business members - both Republicans and Democrats - make and grow things in the United States but face systematic tax discrimination under current law and under the bill currently under consideration in Congress. CPA members pay far higher effective taxes in comparison to their multinational and foreign company competitors."

Brian O’Shaughnessy, Vice Chairman of CPA: “My company, Revere Copper Products, has over 300 employees who live and work near Rome, New York. Revere is dedicated to the success of our community and our country. Sales factor apportionment would help end the tax discrimination against domestic companies like Revere Copper. It would also assist our export potential because profits from international sales would be tax free.”

Dan Alpert, Founder of Westwood Capital and a Fellow at The Century Foundation: "America's current 'worldwide' tax system operates contrary to the national interest because it does not treat all firms who earn profits from sales in the US similarly. Instead, the tax code provides an unearned advantage to domestic multinationals and foreign corporations that offshore production, shift profits to Bermuda or invert to Ireland to pay far lower taxes." 

The letter described SFA in this way:

"The US tax based for corporations would be calculated on the basis of a fraction of companies' worldwide income. This fraction would be the share of each company's worldwide sales that are destined for customers in the United States."

In practice, if American Widgets, Inc. sells 80% of its widgets in the US and exported 20%, then it pays tax on 80% of its total profit. If Multinational Widgets, Inc. sells 50% in the US, it pays tax on 50% of its total profit. If Foreign Widgets, Inc. sells 30% in the US, it pays tax on 30% of its total profit. Hiding profits in subsidiaries located in tax havens would become futile. A recent CPA study recently published in Tax Notes found that corporate tax revenue from SFA would increase by 34% or allows a 9% rate cut with no tax revenue loss.

Robert Hockett, law professor at Cornell Law School: "The fairest corporate tax system in a global economy should tax companies based upon their access to US-based consumers or end-users. It makes little sense to differentiate based upon where a company is legally incorporated, where it purports to produce, or which of its offshore subsidiaries are best at 'creative accounting' when reporting expenses."

Gabriel Zucman, Assistant Professor of Economics at the University of California at Berkeley: "High tax US and European jurisdictions expend enormous resources fighting each other for tax revenue rather than pursuing tax haven jurisdictions. Rather than fighting about whether a multinational firm's highly paid accountants stayed within the law in allocating profits to a country, the US should lead the world in adopting SFA so all companies’s profits are simply taxed based upon where they sell to end users.”

Dean Baker, Co-Founder of the Center for Economic and Policy Research: "SFA is both a fair and simple way to apportion tax burdens across country. It both minimizes the cost of compliance and the opportunities for avoidance."

Marshall Steinbaum, Research Director at the Roosevelt Institute: "As global corporate profits reach record highs but corporate investment has remained anomalously low since the financial crisis, it's clear that perverse international corporate tax policy is wreaking havoc on the global economy. If we move to a destination-based global corporate profits tax system like SFA, corporations will face a strong incentive to reinvest their profits rather than stash them in tax havens."

Read the letter (linked here).

Learn more:

SFA: A Reform for All Seasons

Frequently Asked Questions About Sales Factor Apportionment (SFA)

 

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