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ITIF: Effective Corporate Tax Reform in the Global Innovation Economy

Author: Robert D. Atkinson
July 1, 2009

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The corporate tax code should explicitly promote the international competitiveness of American
businesses and encourage innovation by providing incentives for the drivers of productivity and innovation, says Robert D. Atkinson in this Information Technology and Innovation Foundation report.

An effective corporate tax system reflects current economic realities. As such, there is a need for fundamental reform of the U.S. corporate tax system for it is based on principles that may have made sense a generation ago, but no longer do. However, while there is increasing interest in corporate tax reform, including Obama administration proposals to limit deferral of foreign source income, there is little agreement on what reform should look like. This paper seeks to inform this debate by articulating principles to guide reform and proposing recommendations based on those principles.

For many tax policy experts, effective corporate tax reform means simplifying the code by cutting exemptions and reducing rates. Though appealing in its simplicity, the conventional view is misguided. Rather, a reformed corporate tax code should explicitly promote the international competitiveness of American businesses and encourage innovation by providing incentives for the drivers of productivity and innovation: investment in R&D; new capital equipment, especially information and communications technology (IT); and workforce training. This can and should be done in a way that is fiscally responsible and progressive. In this sense, the goal of reform should be neither to simply reduce rates as many on the right propose nor to raise rates as many on the left propose. Rather it should be to make the corporate tax code a driver of innovation, productivity and global competitiveness.

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