It's Crucial That Tax Reformers Find Common Ground

We are just a few weeks into the new Congress, and the battle lines have already been drawn in the critical debate over tax reform.

Even though no formal bill has advanced in Congress beyond the conceptual stage, lobbying on tax reform is fully underway, with stakeholders from all sectors advancing their priorities. Thus, consensus on the structure and content of tax reform will be very difficult to achieve.

But rather than arguing over the areas of greatest difference, perhaps a better path is to begin with a discussion of what each of the participants wants and seek to find common ground. While using the word “We” may be presumptuous, the following components seem to be commonly identified.

“We” know that we want lower tax rates. Today's nearly 39 percent corporate tax rate has long been a source of consternation. It is by far the largest rate of all the world’s industrialized countries.

“We” know that we want to eliminate the competitive disadvantages that U.S. companies face as they seek to do business globally, while their international peers avoid any worldwide taxation.

“We” know that we want to create jobs and spur growth through American investment, and to stem the tide of tax-motivated corporate inversions and shifting of their business activities overseas.

To achieve these shared goals through comprehensive tax reform, our lawmakers must be prepared to show resolve in the face of fierce debate, and they must be prepared to deal with conflicting political factions in pursuit of a tax system that is better for our nation's long-term economic outlook.

The most serious tax reform effort is the "Better Way" blueprint being developed by House Speaker Paul Ryan and Ways and Means Committee Chairman Kevin Brady. It is expected to begin moving through the House in the coming weeks, and the Tax Foundation projects that it will create nearly 2 million jobs, add 9 percent to the U.S. GDP, and grow wages by just under 8 percent. It also has the crucial advantage of being significantly offset by revenue raisers.

A core element of the “Better Way” program is the inclusion of a border adjustability provision that restructures our current tax system that places a higher tax burden on American products. And per the newly-launched American Made Coalition, it would end the current "Made in America tax". The border adjustment tax (BAT) would raise around $1 trillion in revenue which could then be utilized to offset the cost of reducing the corporate tax rate from nearly 39 to 20 percent.

Supporters of including the BAT in the House blueprint point to its ability to bolster domestic manufacturing and deter the movement of U.S. companies overseas. Realigning the tax structure will give products and services that are made in America an opportunity to compete with foreign products on an equal basis, and imports will no longer receive what has effectively been a tax subsidy. They also point to the likelihood of a much stronger dollar with a BAT in place.

Despite its detractors – companies that rely heavily on imported goods – the plan is very important for those who hope to realize the broader gains of comprehensive tax reform. As noted by the Wall Street Journal, removal of the BAT would “leave a big hole in the Republican plan”. And without the revenue raised by the BAT, comprehensive tax reform will become almost impossible to accomplish.

Tax reform is always an extremely heavy lift. It is one of the most complex undertakings that can be asked of Congress, touching every sector of the economy and threatening decades of embedded political favors.

Even so, the odds of success today are better than they have been in a generation. The process is still in its infancy. The fight will be long, difficult, and politically bruising. But if we can agree on the shared goals of reform, and if we can maintain our focus on what it will take to get there, we have a real chance of achieving meaningful tax reform.

The talking points, fact sheets, sound bites, etc., will be circulating over the weeks and months ahead. We must not allow political “shock and awe” campaigns to distract us from the real work of comprehensive tax reform, or to prevent us from achieving our shared goals. The stakes are too high.