For many engaged in technology policy, tax reform seems an unrelated and unwelcome distraction. Once more unto the breach as Democrats and Republicans battle over whether the “rich” pay their “fair share” and faster long-term growth offsets lost short-term tax revenues.
But tax reform may well be the most critical broadband policy question of 2017 and here’s why: Corporate tax reform is critical to the pace of economic growth, accelerating productivity and faster investment, each essential to a broadband-friendly economic environment.
Right now the U.S. owns the highest statutory corporate rate in the industrial world. Our effective rates likewise rank among the most onerous around. These high tax rates depress domestic investment. Some companies even leave the country — or invest more abroad instead — because the returns are higher there after taking into account our high corporate tax rates. A new study from the Business Roundtable (BRT) shows that with a corporate tax rate at 20 percent — a rate in line with our economic competitors — the United States would have kept over 4,700 companies over the past 13 years.
One great thing about broadband investment, of course, is that by definition it is investment in the United States. A manufacturing company might move a plant abroad, or a services company might outsource back office functions, but building domestic wireline and wireless assets and networks is physical investment within the nation. Every dollar a broadband network operator invests here is a vote of confidence in America’s economic future. Rates of investment in broadband have been very high over the past decade — helping us process all the data on our smartphones quickly — but we want and need many more such votes of confidence in the U.S. Tax reform is one of the best ways to get there.
On a recent BRT panel (embedded below), AT&T CEO & Chairman Randall Stephenson committed his company to increase investment, already at high levels, once corporate tax reform is enacted. He noted that every $1 billion in new investment his company makes leads to 7,000 “hard hat” jobs — putting fiber in the ground and putting cell sites up, jobs like that. Those jobs are not for export, because the physical investment occurs right here in America. And the jobs that new broadband connections lead to are even broader — higher sales for business, more productivity, more jobs in network management, IT, and other areas. Corporate tax reform drives both jobs and wage growth.
It’s not just broadband — it’s other job-heavy industries with large supply chains such as aerospace, defense, semiconductor manufacturing and so many others that will benefit from tax reform. And their workers will benefit, too, because a direct link exists between the corporate tax rate and wage growth.
We need a globally competitive tax system to take full advantage of these investments and encourage more. The average corporate tax rate in the OECD is 23%, putting the U.S. at a competitive disadvantage. The fact is the lower we make our corporate rate, the stronger the economic stimulus. So if, as Stephenson said, “we are competing for capital and jobs,” then the rate “has to be the focus — can we make it competitive?” If not, our economic competitors will continue to attract capital that could have been invested here.
So while we need new rules encouraging AI, enabling 3D printing and improving cyber security, tech policy advocates belong at the ramparts urging lawmakers to include corporate tax reform among their top tech priorities.