Last month, Sen. Max Baucus and Rep. Dave Camp, the chairmen of the House and Senate tax-writing committees, launched a national tour to talk to voters about simplifying our nation's tax code. Their recent stop in our state was a welcomed opportunity. Pennsylvania's businesses and workers will directly benefit from a modern and competitive tax code that attracts investment to the region, fosters innovation and creates new jobs.
As the chair of the Pennsylvania Business Council and a leader of a Pennsylvania business, I experience firsthand the frustrations of dealing with a burdensome and overly complex tax system. Pennsylvania workers should support business tax reform that will strengthen the economy and bolster U.S. competitiveness -- which is the best recipe for job growth.
Pennsylvania-based businesses compete in the global marketplace both directly and as suppliers to U.S. global businesses. Pennsylvania companies face the highest tax rates among developed countries and Pennsylvania's 1,000-plus global businesses operate under U.S. tax rules on their foreign income which discourage reinvestment back here in Pennsylvania.
Likewise, small and local businesses face significant tax challenges as they try to operate and grow their businesses. Complex tax rules make it cost-prohibitive and excessively challenging for many small entrepreneurs to convert their smart ideas into job-creating enterprises.
Tax reform can simplify the tax system and make Pennsylvania businesses more competitive and successful, strengthening operations here in Pennsylvania and resulting in more jobs for our state's workers. Such reform would not unfairly target or favor any industry or business class, but rather acknowledge that we need a competitive tax system that benefits all businesses and workers.
The fact is that our tax code is outdated and in need of serious repair. Congress has not taken up tax reform since 1986 and the tax rules we still have in place today no longer make sense in a rapidly changing marketplace.
While lawmakers constantly tinker with the tax code, most of the tax policies introduced since 1986 have been piecemeal and temporary solutions. Businesses thrive when lawmakers provide certainty, but struggle when the policy goal posts are constantly moving. The failure to provide comprehensive and permanent reform makes the United States a less attractive site for new investment.
At 41.5 percent, Pennsylvania's combined (federal plus state) corporate income tax rate is more than 15 percentage points higher than the average in the rest of the developed world. The high rate hurts the economy, which is currently growing at less than 2 percent, frustrating millions of American workers looking for jobs.
U.S. international tax rules are similarly outdated. Most current U.S. international tax rules for taxing foreign earned income were enacted in the 1960s and reflect the realities of a different era. In 1960, 17 of the world's 20 largest companies were U.S. headquartered. In 2012, only five of the top 20 were American companies. Foreign competition has grown, and it is no coincidence that when other countries make their tax systems more competitive, their companies prosper and grow -- putting U.S. globally engaged companies at a disadvantage. Pennsylvania's globally-engaged companies, their suppliers and the spending of their employees have supported nearly 3 million jobs in the state. Imagine the potential for growth if our businesses were able to compete abroad more effectively and invest even more of their capital into expansion efforts here at home.
Comprehensive tax reform must include a competitive corporate tax rate and a transition to a modernized international tax system. Primarily, international tax rules should allow U.S. companies to return their foreign earnings back to the United States without a penalty, enabling those businesses to innovate, invest and create jobs at home. These reforms will put American companies on a level playing field with their international competitors. What's more, Congress can make these changes without increasing the deficit by simplifying the maze of corporate tax provisions that have accumulated in the tax code in the past 30 years, including the elimination of deductions and credits where it makes sense to do so.
Both political parties agree that our tax code is broken, and we will need bipartisan support to fix it. That's why comprehensive tax reform is an effort we can all support: simpler, more up-to-date rules for a healthier economy and more jobs for Pennsylvania and the United States.
Kathy L. Pape is the president of Hershey-based Pennsylvania American Water and the chairwoman of the Pennsylvania Business Council.