Today's Tax Code Is Failing the American People

Americans are always on the hunt for a good deal. Whether it's a new house, new car, or groceries, we are careful to make sure we are spending our money wisely. And significantly, when it comes to our tax returns we would prefer to hand back as little of our hard-earned money as possible to Uncle Sam.

Those running for higher office are certainly not averse to looking for a lower tax rate when it comes to paying their income taxes. While the GOP presidential nominee Donald Trump refuses to release his tax returns, he acknowledges at the same time that he works "very hard to pay as little tax as possible." Even Senator Bernie Sanders, who rails against high income earners paying less taxes than blue collar workers, paid a lower tax rate than many Americans.

So it shouldn't be surprising that American businesses are on the same hunt. Unfortunately, thanks to our complex tax code, that hunt often ends in what's called an inversion - a U.S. company and foreign company merge - with the resulting corporate headquarters located overseas under a lower tax rate.

Whatever side you come down on in the debate over inversions - corporations are unpatriotic or just doing what is necessary to survive in a global economy - we all have to agree that as USA Today recently put it: "The U.S. corporate tax system is an unholy mess."

Indeed it is.

And a big part of that mess is the combined (federal and state) corporate tax rate which stands at a whopping 39 percent, the third highest in the world. To give some perspective, the worldwide corporate income tax rate is 22.8 percent. And while other countries are making moves to lower their corporate tax rates to encourage economic growth, the United Kingdom most recently, the United States has yet to follow suit. In fact, it's been thirty years since Congress has passed major tax reform. As a result, our businesses are being held back from expanding and investing both globally and here at home, resulting in lost jobs and wages for Americans.

For those who think lowering the corporate tax rate is all about big business, think again. Adopting a 25 percent rate would increase the nation's Gross Domestic Product (GDP) by 2.3 percent and create 425,000 jobs. Dropping it to 15 percent would result in a 4.3 percent GDP increase and yield 786,000 jobs.

The USA Today editors hit the nail on the head in their assessment that, "The best way to deal with inversions and other tax-avoidance games is to cut the high corporate tax rates that are prompting corporate leaders to seek relief in gimmicks. Like so much else in Washington, however, efforts to fix corporate taxes are going nowhere fast. Congress is loath to take on a tough issue. And the Obama administration continues to push Band-Aid efforts."

The most recent of those efforts are another set of Treasury regulations that are so overly broad that everyday cash management techniques used across industries and sectors of our economy will be caught up in their net.

It's not just the high corporate tax rate holding back American businesses but the equally problem some worldwide tax system imposed by the Tax Code. This simply means that a company is required to pay U.S. taxes on overseas profits when it bring these earnings home. As a result, many multinational businesses choose to keep those foreign earnings - estimated to be in the trillions - abroad rather than investing it in the U.S. We are only one of six industrialized nations employing a worldwide tax system in stark contrast to overwhelming majority of developed nations that have a territorial tax system in which only income earned within a country's borders is taxed.

But the individual side of the tax code isn't much better. Over the years, it's become increasingly complex, with compliance costs requiring billions of hours and hundreds of billions of dollars. A sound tax system should be based on five basic principles: simplicity, transparency, predictability, responsiveness, and efficiency. Our current system fails on all of those principles.

More importantly, it fails the American people. To better serve them and our still-sputtering economy, Congress and the White House need to work together to pass comprehensive tax reform that is uniform, simplified and encourages investment and growth. The result will be a much better deal for the economy, businesses and the American taxpayer.