Paulson Warns: Over-Taxation and Over-Regulation Hamper US Competitiveness

Treasury Secretary Henry Paulson recently spoke in St. Louis on the importance of having an open and competitive economy. While many politicians assume cross-border economic activity is a threat and like to blame foreigners for any bad news, Paulson correctly noted the benefits of openness and warned that America’s biggest challenge may be self-inflicted wounds caused by too much taxation and too much regulation. reports:

Paulson warned that the US is starting to lose its edge in terms of tax competitiveness as emerging economies compete fiercely for foreign investment. …According to the US Treasury, in the last few years, the United States has not received as high a share of total worldwide FDI as it did before 2000. Paulson said that this trend could be due to the growth of opportunities in emerging markets, burdensome US legal, regulatory and corporate tax regimes, or the misperception that the United States is no longer open to foreign direct investments. In any event, the Treasury Secretary said that such statistics were “cause for some concern”. …He went on to tell the Forum that: “The United States has historically been the best place in the world to do business and is a magnet for foreign investment, so it’s important to reaffirm both our openness to foreign direct investment and the benefits investment brings to the US economy. And as we seek to attract foreign capital, we must realize that we have a constantly changing world where there are an increasing number of attractive economies across the globe competing for investment dollars. Against this backdrop, we must assess the cost versus the benefits of our regulatory structure and certain aspects of our legal system that may discourage foreign investment.” Paulson said that tax competitiveness was an integral part of maintaining foreign interest in the US economy, perhaps hinting that the administration’s goal of substantial tax reform is no longer the lost cause that supporters of tax code simplifcation had begun to fear. “Our corporate tax system is also increasingly putting us at a competitive disadvantage with some – with a few other nations which tax companies or capital at lower rates than does the US,” he stated.