November 13, 2023

The Honorable Connie Mack

Chairman

Advisory Panel on Tax Reform

1440 New York Avenue NW

Suite 2100

Washington, DC 20220

The Honorable John Breaux

Vice Chairman

Advisory Panel on Tax Reform

1440 New York Avenue NW

Suite 2100

Washington, DC 20220

Dear Chairman Mack and Vice Chairman Breaux:

On behalf of the membership of the Information Technology Association of
America, we would like to submit the following comments for your
consideration with regard to tax reform.

The information technology sector has created more jobs for US citizens
than any other sector over the past decade. America's technology sector
has made an enormous contribution to the US economy both directly and
indirectly, supporting science and math education at all levels,
promoting innovation and research, creating jobs, boosting efficiency
and productivity, and enhancing the competitiveness of every industry
sector. The explosive growth in the information technology sector over
the last ten years has had a positive impact on the quality of life for
all Americans.

As a general matter, we believe that any tax reform effort should be
designed to support economic growth, to make US companies more
competitive globally, and to promote the spirit of innovation upon which
this nation was founded. Furthermore, tax reform should not result in
increased net taxes on the business sector, and given the complexity of
existing corporate taxation, there needs to be appropriate transition
rules to account for treatment of various tax assets and liabilities.

Specifically, we would like to address four critical issues that we
believe are essential to the future competitiveness, innovation and
productivity of our sector.

#### Lowering the Corporate Tax Rate

First, the information technology industry supports a reduction in the
overall corporate tax rate. Today, foreign nations are lowering their
tax rates to attract corporate investment. The US tax code must seek to
provide a level playing field for US business interests relative to
foreign competitors by reducing corporate tax rates, making them
commensurate with major US trading partners. A globally level tax
playing field is crucial for the information technology industry's
continued growth and productivity.

#### Supporting Research and Development

Second, we strongly support tax code provisions that promote increased
research and development spending across all industry sectors. For
example, a permanent and strengthened R&D tax credit should be adopted
so that more companies that perform significant R&D can benefit. Many
positive economic benefits are driven by the performance of research and
development, including increased revenue streams to US companies that
enhance their ability to hire employees, purchase capital goods, pay
dividends to shareholders and contribute to a strong US tax base. It
also secures US leadership in areas that are critical to sustained
economic growth and US and global security.

Successful research and development not only affects the kinds of goods
that flow to consumers, but also enhances the labor and capital inputs
used to produce them. It is widely agreed that firms doing research and
development do not capture all or even most of their investment through
the price mechanism. The existence of the essentially free spillovers
means the social return from research and development exceeds the
private return. [^1]

Significant social benefits from conducting research and development in
the United States include the creation of quality jobs with
higher-than-average wages, a more educated and adaptable workforce, and
upward social and economic opportunities for a broad segment of the
population.

Without a permanent and strengthened R&D tax credit, more innovative
activities may move offshore thereby benefiting foreign workers, foreign
providers of capital goods, and foreign governments. This will result in
the transfer of critical technology and knowledge overseas, and
undermine America's leadership position.

Today, foreign nations are not only lowering their overall tax rates to
attract US companies, they are also providing robust and stable research
and development tax incentives in order to access US knowledge and
expertise. We must have a strong and permanent research and development
tax credit in the US that is widely available to a broad range of
research-intensive companies.

# Reforming U.S. International Tax Rules

Third, many of the United States' international tax rules were crafted
in the 1960s at a time when U.S. multinationals were dominant and the IT
industry of today was non-existent. Over the years, various tax bills
have further complicated the rules. Present law taxes active business
operations on a current basis in ways that other countries do not,
thereby adding to the tax costs of U.S. global firms vis-à-vis their
foreign competitors.

Current U.S. law has not kept pace with the rapid development of the
global economy. Specifically, the treatment of foreign subsidiary income
and the treatment of the foreign tax credit need to be reformed. The IT
industry, in particular, is highly competitive in the global marketplace
and U.S. firms face higher relative tax costs due to the outdated nature
of US tax rules relative to international operations.

#### Eliminating Communications Excise Tax

##### Finally, the information technology industry supports the repeal of the federal communications excise tax (FET). The FET of three percent on telecommunications services has been in place since the Spanish American War. The FET was premised on the concept that the telephone was a luxury, available only to the wealthy, instead of the standard, widely available communications service that it is today. 

##### 

##### In order for tax reform to succeed, we must rid the code of antiquated provisions such as the FET. To continue the imposition of an outmoded luxury tax on a service that is the infrastructure of the modern digital economy merely perpetuates an irrational system that has not kept up with the changing needs of our country. Moreover, the out-of-date wording of the current law, together with the growth of new and radically different technologies and services, has left taxpayers in an uncertain state as to what is and what is not taxable. The FET must be repealed. 

#### A Note on Transition Rules

Any tax reform effort must weigh the benefits of change against the cost
of transition. Imposing additional costs without clear benefit is
counterproductive. It is critical that clear rules be stated to provide
a smooth transition of valuable tax assets.

##### **[Conclusion]{.underline}**

With 400 direct and affiliate member companies, the Information
Technology Association of America (ITAA) is the leading trade
association serving the information technology industry. ITAA seeks to
foster an environment that is conducive to the health, prosperity and
competitive nature of the information technology industry and to help
its members succeed in delivering the benefits of IT to their customers.

We believe that a forward-thinking, non-discriminatory tax system in the
United States is essential to the continued growth and prosperity of the
high technology industry. As a key driver of innovation, productivity,
employment and economic prosperity in the United States, the technology
industry needs a tax system that is fair and equipped to respond to its
rapidly changing nature.

ITAA urges you to consider these recommendations as you develop your
recommendations to the President. We welcome the opportunity to discuss
them in further detail with you. Please contact Stephanie Childs at
<schilds@itaa.org> or 703.284.5352 for more information.

Respectfully,

![](media/image1.png){width="2.9993055555555554in"
height="1.2520833333333334in"}

Harris N. Miller

President

Information Technology Association of America

[^1]: *Securing America's Future: The Case for a Strong Manufacturing
    Base*, a report by Joel Popkin and Company for the National
    Association of Manufacturers, June 2003.