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On “Territorial” Taxation Issue, Don’t Ignore U.S. Workers’ Interests

“We don’t have an obligation to solve America’s problems,” an Apple executive told the New York Times in connection with Apple’s decision to make the iPhone in China.  “Our only obligation is making the best product possible.”

To be sure, Apple is a business and, as such, it seeks to maximize profits for its shareholders — not improve the living standards of average Americans.  Unfortunately, policymakers tend to forget that basic reality when they are debating policy, especially tax policy.

Take the major effort by a number of corporations to convince Congress to adopt a “territorial” tax system, which would set U.S. taxes on corporate foreign profits at zero. Proponents claim it would make the United States more “competitive” with other countries, implying that we’re all in this together.  But although a territorial tax system might be good for corporate shareholders, it might not be good for America’s workers. The Congressional Research Service’s Jane Gravelle told Congress last year that it:

would make foreign investment more attractive.  That would cause investment to flow abroad, and that would reduce the capital which workers in the United States have, so it should reduce wages.  A capital flow reduces wages in the United States [and] increases the wages abroad.

Congress needs to remember the Apple executive’s statement when considering the territorial proposal.  The interests of U.S. multinationals merit consideration, but so, too, do the interests of average Americans.

Chuck Marr
Vice President for Federal Tax Policy