U.S. Tax Reform

By Jamie Gerard

Although SEMI has been working on behalf of its members on reforming the U.S. business tax code for many years, the opportunity to see that change is becoming more likely than any time in the 21st century. President-elect Donald Trump and the Republican majorities in both houses of Congress have signaled that tax reform will be at the top of their agenda as the 115th congress gets underway in 2017. SEMI has been working to reform the tax code to better meet the modern needs of companies and to make the U.S. more competitive with other countries’ rates, while also providing for incentives for innovation, like the research and development tax credit.

SEMI members have clearly cited tax rates as a factor in company investment decisions. Without a change in the rate, the U.S. will be placing itself at a competitive disadvantage to other nations in Europe, Asia, and even North America. With the highest corporate tax rate of any developed nation, America is at a distinct, self-imposed, disadvantage when it comes to business investment. While the top corporate tax rate in the U.S. is 35 percent, the average OECD rate is 25 percent, and dropping. Proposals from the House Committee and Ways and Means suggest that the top rate be closer to 20 percent, while President-elect Trump’s plan goes even further with a proposed 15 percent rate.

It is understood that in order to achieve these lower rates and along with a fundamental re-writing of the tax code, certain tax exemptions for businesses will be eliminated. While this is inevitable in any major reform of the code, SEMI believes that the U.S. must continue to support American innovation as a fundamental driver of our economy. SEMI members thrive in an intense research and development environment investing, on average, 15 percent of their revenues back into R&D each year. As such, we believe that it is in the country’s best interest to ensure the availability of incentives which prioritize research and development as an important economic driver. Currently, the R&D tax credit ─ made permanent less than a year ago ─ acts as such an incentive, and SEMI will fight to ensure its place as a policy of great strength to promote American innovation. In addition, SEMI continues to work to bring parity to the R&D tax credit by having the Alternative Simplified Credit (ASC) be brought up to the same 20 percent level as the regular R&D credit.

Much of the focus on business tax reform concerns the return of foreign-held profits by U.S. companies. While a special discount rate or one-time “repatriation” to bring back those profits at a lower rate is something that many support, it is not a long-term solution. That is why SEMI would like to see a territorial tax system implemented for the U.S. The current American system is an outdated relic of a past in which the U.S. was the only dominate global business center. Time has changed the way that companies do business, and that should be reflected in our tax code. Moving to a territorial tax system that is more in line with the way the rest of the world taxes business will make the U.S. a better place for corporations to be headquartered, and therefore create increased economic activity.

While a full and complete overhaul of the U.S. tax system will be a long and complicated process, the elected officials charged with making these decisions are in a unique position at the start of 2017 to finally see some progress on the issue. SEMI will continue to work on these issues on behalf of its members, and welcomes input from companies on the specific implications of these tax reform plans as they are revealed. If you would like to share your thoughts on this matter and how it affects your business, please contact Jamie Girard, senior director, Americas Public Policy, SEMI, at [email protected].