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Obama's Comments on Corporate Tax Reform at Odds With Tech Industry Obama's Comments on Corporate Tax Reform at Odds With Tech Industry

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Obama's Comments on Corporate Tax Reform at Odds With Tech Industry

Updated: 6:30 pm

President Obama's efforts to differentiate himself from GOP challenger Mitt Romney on corporate tax reform are unlikely to sit well with the tech industry.

Although both agree on the need to cut the corporate tax rate, Obama has criticized Romney for also favoring the implementation of a territorial tax system, which calls for taxing only those earnings that occur inside the United States. Under the current U.S. tax system, corporations are taxed for what they earn domestically and abroad unless they reinvest those revenues overseas.

"If we take your advice with respect to how we change our tax code so that companies that earn profits overseas don't pay U.S. taxes compared to companies here that are paying taxes, that's estimated to create 800,000 jobs. The problem is they won't be here; they'll be in places like China," Obama said during Monday night's debate on foreign policy. It echoed a similar comment he made in last week's debate.

Many tech groups have joined with other business interests in pushing for a territorial tax system along with a reduction in corporate tax rates. They argue that allowing companies to bring back earnings that have been parked offshore to avoid what they describe as "double taxation" will allow them to create jobs in the United States. They say it would make the United States more competitive against many other countries that have adopted a territorial tax system. They also note that Obama's assertion that such a system would lead to the creation of 800,000 jobs abroad is based on a flawed study that did not measure the impact of tax reform on U.S. job creation.

"The president criticized the very same competitive, market-based tax reform plan that most advanced economies use and his best economic advisers say is integral to American companies' competitiveness and ability to create jobs here at home," Information Technology Industry Council President and CEO Dean Garfield wrote in a blog post after the second presidential debate.

Garfield's group and others note that some outside advisers to Obama, including the Council on Jobs and Competitiveness and the President's Export Council, have recommended switching to a territorial tax system.

"We believe a competitive market-based system will help to create jobs and increase investments here at home," Information Technology Industry Council spokesman Tom Gavin said on Tuesday. The current corporate tax structure "is outdated and hurting America's competitiveness. We look forward to working with the next administration and with the next Congress on a national jobs and innovation strategy ... that has as a central part of it a smart tax strategy."

The group's call for a territorial tax system along with a reduction in corporate tax rates has been echoed by other tech industry representatives including TechAmerica and TechNet.

"We welcome this debate with the president to set the record straight on the true benefits of moving the U.S. to a competitive territorial system," TechAmerica's Senior Vice President of Federal Government Affairs Kevin Richards said in a statement Tuesday. "We intend to convince [the] president and congressional leaders that a much-needed move to a territorial system will not only ensure a level playing field with the rest of the world but also enhances our nation's competitive standing for years to come. Modernizing our tax code to account for the innovation economy will only incentivize jobs here at home."

Regardless of Obama's comments during his tight reelection race, industry officials say they are hopeful that if the president is reelected, the White House and congressional Democrats may be more open to the idea of a territorial tax system as part of an overall tax-reform proposal that lawmakers may take up in the next Congress.

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