Taxes and International Competitiveness (CRS Report for Congress)
| Release Date |
Revised March 11, 2008 |
| Report Number |
RS22445 |
| Report Type |
Report |
| Authors |
Donald J. Marples, Government and Finance Division |
| Source Agency |
Congressional Research Service |
| Older Revisions |
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Summary:
The term "international competitiveness" has long been an important part of tax policy debates and most recently has been prominent in discussions about fundamental U.S. tax reform. For example, in Executive Order 13369, President Bush stated that one goal of reform should be to "strengthen the competitiveness of the United States in the global market place." And in July 2007, the U.S. Treasury Department hosted a conference on business tax policy to explore ways in which the U.S. tax system might be reformed to enhance competitiveness. Yet despite its prominent use, the meaning of "competitiveness" is often vague, with its definition frequently depending on the perspective of the user. This report looks at competitiveness from three different perspectives: that of individual domestic firms, that of multinational corporations, and that of domestic labor. In each case, the report then applies economic analysis to the competitiveness concept, which adds clarity by identifying the specific ways in which taxes affect international trade and investment. With trade, tax burdens can affect what is traded, its overall level, and who benefits from trade, but they do not directly affect the trade balance. Further, it is the pattern of relative U.S. taxes within the domestic economy that matters for trade, not how a firm's taxes compare with those of its foreign competitors. With investment, taxes can affect the extent to which U.S. firms establish operations abroad and can affect economic efficiency and welfare as well as the distribution of income within the domestic economy and between the United States and foreign countries. This report was originally written by David L. Brumbaugh, Specialist in Public Finance. It explains basic economic principles and will not be updated.
