According to IHS CERA, “the acquisition of mineral rights is the paramount point of competition between oil and gas companies irrespective of their origin. Win it, and a company will have the ‘fuel’ in its portfolio to deliver superior growth and returns. Lose it, and performance (and in the long term, survival) become an uphill struggle.”
The same study also found that U.S. tax law puts U.S. companies at a competitive disadvantage because it has the potential to take a greater share of American oil and natural gas companies’ earnings from abroad than almost any other government in the world. Of the 10 countries considered in the study, researchers found that only France and India took more of such earnings than the United States.
Adopting stable tax policies that enable the U.S. oil and gas industry to remain competitive in the global marketplace for energy clearly benefits the U.S. economy and secures American jobs.
Lowering the Corporate Tax Rate
According to a recent study by the Business Roundtable (BRT), “Advancing America in the Global Economy,” the U.S. tax rate of 39 percent (combined federal and state) is anti-competitive for U.S. multinational companies, weakening the U.S. economy and workforce. The tax rate is more than 14 percentage points above the developed country average of 24.6 percent and has contributed to the 28 percent decline in the number of U.S.-headquartered companies in the Global Fortune 500 in 2014 versus 2000. The long-run impact on the U.S. economy is equivalent to a reduction in GDP of roughly $235 billion to $345 billion each year. Moreover, the U.S.’s high corporate tax rate ultimately harms job creation and America’s workers.
Corporate tax reform is needed to strengthen the U.S. economy, boost workers’ after-tax wages, and increase investment from businesses. More specifically, the BRT reports that, had the U.S. reduced its corporate tax rate to 25 percent over the past 10 years, the U.S. would have attracted or retained 1300 U.S.-based companies, increased GDP by 2.2 percent, increased workers’ after-tax wages by 3.8 percent and increased business investment by 6.5 percent.
Moving Toward a “Territorial” Tax System
Studies have shown that the success of U.S. multinational companies translates to a strengthened U.S. economy. In particular, a study commissioned by the BRT and the United States Council Foundation found that U.S.-based multinationals accounted for more than 24 percent of the total U.S. private-sector output, more than 29 percent of the total U.S. private-sector capital investment, more than 74 percent of total R&D performed by U.S. companies and over 45 percent of total U.S. exports. U.S. tax policies that weaken U.S.-based multinational companies weaken the U.S. economy and its workforce.
Other countries have adopted “territorial” tax systems to strengthen, attract and retain multinational corporations. Under these territorial systems, corporations only pay income taxes on earnings within a country and are free to return international earnings home without fear of additional “double taxation” by the home country. Companies can compete on a level playing field with other companies in foreign markets and return these earnings home for reinvestment without incurring an additional layer of tax. Reforming the U.S. international tax system to provide similar rules for American companies would enhance the global competitiveness of America-headquartered companies and strengthen the U.S. economy by removing barriers to returning foreign earnings for investment in the United States.