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Policy Brief 12-3

Another Shot at Protection by Stealth: Using the Tax Law to Penalize Foreign Insurance Companies

by Gary Clyde Hufbauer, Peterson Institute for International Economics

January 2012


Together, US federal and state governments impose almost the highest corporate tax rate found among advanced countries, 39 percent. Only Japan is fractionally higher. The high US rate has adverse consequences—lost investment, lost jobs, and less innovation—and goes a long way to explain slipping US competitiveness in the world economy. Some US-based companies that face competition from foreign-based companies think they have found the answer: by one means or another, persuade Congress to impose US taxation on the foreign companies. Instead of attacking the root problem—exceptionally high US corporate taxes—this "solution" seeks to handicap foreign competitors with the same burdensome tax system that handicaps US-based firms when they do business at home and abroad. If Congress embraces this piece of tax discrimination, US consumers who live in disaster-prone areas could suffer as well. Reinsurance written by foreign affiliates pays a major portion of claims in these regions. This portion of the insurance market will either shut down or premiums will rise to cover the new tax burden. There is no reason for the US Congress to go down the path of tax discrimination, harming relations with foreign partners and imposing additional costs on American consumers who live in high-risk areas. Instead, the US Congress should focus on corporate tax reform that puts US companies on the same competitive playing field as their foreign rivals.

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RELATED LINKS

Policy Brief 11-16: US Tax Discrimination Against Large Corporations Should Be Discarded October 2011

Policy Brief 11-2: Corporate Tax Reform for a New Century April 2011

Policy Brief 10-10: Higher Taxes on Multinationals Would Hurt US Workers and Exports May 2010

Testimony: Tax Reform and the Tax Treatment of Debt and Equity July 13, 2011

Book: US Taxation of Foreign Income October 2007

Book: Reforming the US Corporate Tax September 2005

Op-ed: America Badly Needs a Value Added Tax April 21, 2005

Paper: Tax Policy in a Global Economy Revised February 2000