European State Aid Ruling Undermines U.S. Tax Base
The European Commission today ordered that Apple must pay the Irish government 13 billion euros (about $14.5 billion) plus interest following a judgment that the company’s tax rate constituted “illegal state aid.” Bureaucrats in Brussels do not accuse Apple of dodging taxes, but of paying too little, a charge that undermines the tax sovereignty of Ireland and existing rules of international taxation.
EU officials are taking money that rightfully belongs to American taxpayers and businesses. This will mean less tax revenue, less money reinvested in our economy, and even threatens to undermine the prospects for pro-growth tax reform.
Leaders in Congress and the Treasury Department agree that the investigations are discriminatory and will set a precedent allowing the EU to tax income that rightly belongs to the American people. American businesses like Amazon and McDonalds are vulnerable to tax hungry European bureaucrats because our system of double taxation has stranded an estimated $2.1 trillion in American income overseas.
Under our tax code, businesses headquartered in the U.S. must pay taxes on income they have earned overseas, even after it has been taxed in the country it was earned. This creates a significant competitive disadvantage because businesses headquartered in most developed countries do not face this double taxation.
The trillions in stranded income is one indicator of our broken tax code, but it also represents a key part of any pro-growth tax reform effort. Pro-growth tax reform efforts, like the the “Better Way” plan released by House Speaker Paul Ryan (R-Wis) and Ways and Means Chairman Kevin Brady (R-Texas) rely on the revenue being raided by Europe for two reasons. First, to help ensure that reform remains revenue neutral, and second to ensure that the plans break the shackles of our stagnant two percent economic growth.
In the past, Congress has allowed businesses to repatriate double taxed income at a rate of just over 5 percent, resulting in $320 billion returning to the country that was reinvested in the economy, in higher wages, and in federal revenues. Now, with more than two trillion stranded overseas, the time is ripe for another round of repatriation that can finance pro-growth tax reform. But the more money that Brussels strips away from the American people, the dimmer these hopes become.
While European officials claim these investigations are a matter of fairness, this is simply a thinly veiled argument to continue raiding money that rightly belongs to the American people. The more money that Europe can strip away from American taxpayers, the less is available to be repatriated back to the U.S. economy to finance tax reform and reinvest in our economy.