WTO Demands Change in U.S. Tax Laws

by Congressman Ron Paul, MD

Many Americans already have grave concerns about the loss of sovereignty inherent in our participation in global government organizations like the UN and the WTO. Few understand, however, the extent to which Congress already capitulates to the globalists when it writes the laws that affect all of us.

Last week, the WTO appellate panel ruled that U.S. tax rules exempting some corporate income earned overseas from taxation constitute an "illegal subsidy."  Incredible as it seems to liberty-minded Americans, the WTO and the Europeans are now telling us our laws are illegal and must be changed. It's hard to imagine a more blatant example of a loss of U.S. sovereignty. Yet there is no outcry or indignation in Congress at this naked demand that we change our laws to satisfy the rest of the world. I've yet to see one national politician or media outlet even suggest the obvious, namely that our domestic laws are simply none of the world's business.

The sad irony is that Congress already changed our corporate tax rules last year in an attempt to appease the Europeans, who had filed a complaint with the WTO about our treatment of corporate overseas earnings. The Europeans accuse us of "subsidizing" U.S. companies by not taxing every last penny of their foreign income. Yet virtually all European countries have what is known as a "territorial" tax system, meaning they do not tax their citizens and companies on income earned outside the country at all. By contrast, America has a "worldwide" tax system, which imposes tax on income earned anywhere. Even so, the WTO continues to accuse of us maintaining an unfair practice, setting the stage for Europe to seek billions of dollars in sanctions.

The solution to the WTO complaint is obvious- we should stop taxing foreign income altogether. Surely the Europeans could not object if we changed our system to more closely resemble theirs. After all, the IRS should not be taxing activity outside the U.S. anyway- it's outrageous that American citizens are actually less free than the socialist Europeans when it comes to income earned abroad. Prominent members of the Republican congressional leadership have stated they would prefer a territorial tax system, and I intend to hold them to it by introducing legislation that will end the taxation of foreign income.

This latest affront to our sovereignty makes it clear we must get out of the WTO if we hope to avoid further international meddling in our domestic affairs. The WTO is not about free trade, but rather government-managed trade that benefits certain corporate interests. The Constitution grants Congress, and Congress alone, the authority to regulate trade and craft tax laws. Congress cannot cede even a small part of that authority to the WTO or any other international body, nor can the President legally sign any treaty which purports to do so. The Founders never intended for our nation to become entangled in international trade agreements, and they certainly never intended to have our laws overridden by international bureaucrats. Congress may not object to being pushed around by the WTO, but the majority of Americans do.

January 26, 2002

Dr. Ron Paul is a Republican member of Congress from Texas.

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