FALLS CHURCH, VA – President Obama’s fiscal 2011 proposals to raise taxes on foreign investment of U.S.-based companies by $122 billion over 10 years could restrict the growth potential of those companies, according to an Special Report in this week’s Tax Notes written by Barbara Angus, Tom Neubig, Eric Solomon, and Mark Weinberger of Ernst & Young LLP and Ernst & Young Global, and prepared in consultation with several U.S. based global companies.

The four former U.S. Treasury Department officials write: “It would be unwise to believe that raising taxes on foreign investment by U.S.-headquartered companies would help, or at worst would not adversely affect, the U.S. economy and American workers.”

In the Special Report, titled “The U.S. International Tax System at a Crossroads,” the authors write that foreign investment by U.S.-based companies should not be discouraged with higher taxes because it “generally has positive economic effects within the United States” – with one study showing that a 10 percent increase in foreign investment “is linked to a 2.6 percent increase in domestic investment.”

While questioning these proposals, the authors suggest that the current U.S. international tax system, key elements of which date back to 1962, could use an overhaul and that the United States is increasingly out of step with global tax trends.

"There is so much at stake in the international tax reform debate," said Barbara Angus, Principal, International Tax Services, Ernst & Young LLP. "What is called for is a full and thoughtful discussion that focuses on how the international tax system can operate effectively and encourage economic growth and job creation."

Read this Special Report.