The U.S. needs broad-based tax reform, including corporate tax reform.
However, that is a heavy lift that will not happen overnight. But what if there was an opportunity to make progress, through a temporary change to the tax code, which would inject billions of dollars into private sector growth, lower the federal deficit and help America's economic recovery?
My bipartisan bill The Freedom to Invest Act of 2011 offers just such an opportunity. Sens. Kay Hagan, D-N.C., and John McCain, R-Ariz., introduced a Senate version Thursday morning.
First, some tax code basics.
Within a year, the nominal U.S. corporate tax rate of 35 percent will be the highest corporate tax rate in the world. Under existing federal tax law, U.S.-based multinational corporations are allowed to defer paying U.S. corporate taxes on profits made overseas as long as the profits are invested outside the U.S.
Only four other countries in the world (Ireland, Mexico, Poland and South Korea) tax their companies' foreign profits in that way.
As a result, we have an estimated $1.4 trillion of private capital that is not returned to this country where it could be invested in research, capital improvements, pension accounts, or hiring.
As global leaders in entrepreneurship and innovation, American companies and American products names such as Adobe, Apple, Cisco, Microsoft, Oracle and Google have invested abroad to expand their customer base and compete worldwide.
But our misguided tax code actually creates a disincentive for them to return to America some of that overseas money.
The Freedom to Invest Act seeks to remove that disincentive. Under my bipartisan repatriation proposal, companies that would return any foreign profits above and beyond what they would ordinarily return would be taxed at 5.25 percent.
One independent economic model of this temporary tax relief proposal shows a corresponding reduction in the federal budget deficit of $47.6 billion a year over five years through unrealized tax receipts.
When a past repatriation policy was in effect in 2005, the unemployment rate dropped by almost half a percent, real GDP growth went up 1.3 percent and U.S. exports increased by $132 billion.
At no cost to taxpayers, extra money helped companies expand in this country as well as reduce the federal deficit.
One significant change in this bill from the 2004 repatriation law is to scrap the requirement that companies prepare and formally approve a domestic reinvestment plan. Instead, I propose a provision designed to penalize companies who repatriate earnings but then also cut jobs.
It would be counterproductive to bestow tax relief while also allowing the elimination of employees.
Stakeholders across the ideological spectrum agree that removing the current tax barrier to returning foreign profits to the U.S. makes sense.
The business community has expressed support for the idea, as have some leaders of organized labor.
American free enterprise drives innovation. Unlocking that free market power is the key to help strengthen and stabilize our financial balance sheet.
As legislators, it is our job to promote policies that give U.S. companies the best competitive advantage in a global marketplace.
The Freedom to Invest Act is a bipartisan, common-sense idea whose time has come.
Rep. Jim Matheson represents Utah's 2nd Congressional District.