A Bipartisan Growth Fix? Comprehensive Tax Reform
Welcome to the start of a New Year, a time when many Americans make resolutions to improve their quality of life. Invariably, one of those resolutions is being smarter when it comes to spending and saving money. One New Year's resolution that the Taxpayers Protection Alliance (TPA) has for Congress is to also be more fiscally responsible, and that means passing comprehensive tax reform.
Simplifying the tax code and a commitment from lawmakers to do so is the blueprint to ease some of American consumers and businesses' financial woes and increase economic growth. Fortunately, certain Presidential candidates, and some leaders in Congress, are starting to understand the importance of tax reform and have pledged to make this issue a priority in 2016. But all talk will be hollow unless the candidates and lawmakers put their words into action.
The Presidential campaign is now in full gear with the candidates escalating their rhetoric on proposals to generate economic growth and prosperity. They have all highlighted tax policy as a way to achieve these goals. The Economist recently analyzed each of the candidates' tax proposals. Even though TPA doesn't endorse candidates, we support any candidate's pledge to overhaul the tax system including simplifying the system for individuals and lowering America's corporate tax rate. Former Florida Governor Jeb Bush proposed to "slash the corporate tax rate to 20 percent." New Jersey Governor Chris Christie similarly recognized the importance of lowering America's corporate tax rate when he called for lowering the rate 25 percent in a recent Iowa campaign stop. Carly Fiorina has suggested that the 70,000-page tax code be whittled down to just three pages. Now that's simplification.
America's competiveness is at risk because the country faces the highest corporate tax rate in the world. The National Taxpayers Union recently pointed out that "in the past 10 years alone, the worldwide average rate has fallen seven points to under 23 percent, compared to the federal and state average for the U.S. of over 39 percent." If America is to maintain a leadership position in trade, commerce, and economic prosperity, the next President needs to reduce our corporate tax rate within the first 100 days.
Congressional leaders are also raising concerns that America's tax code is woefully out of date and in need of simplification. There has been no greater champion of this cause than new House Speaker Paul Ryan (R-Wisc.). In early December, Speaker Ryan delivered an agenda setting speech where he made the intellectual case for tax code simplification. Speaker Ryan pointed out that Canadians tax small businesses at 15 percent whereas the US's top tax rate on successful small businesses is over 44 percent. America will further undermine small businesses' pursuit to compete effectively if this tax rate remains exceedingly high. What's now needed is a bipartisan effort in Washington to prioritize tax code simplification to make sure small businesses can fairly compete to innovate and grow their services.
Any pursuit of tax reform in 2016 should be executed in a way so that government does not pick winners and losers in the American economy. But, picking winners and losers is exactly what the Obama Administration and Senate Democrats have done when they called for a repeal of tax deductions on traditional oil and gas companies under the misguided notion that these deductions are allegedly subsidies on the industry.
TPA corrected this obvious discrepancy, and exposed this clear case of political bias, in a recent Washington Post letter to the editor. We noted that a subsidy is defined as a direct payment from the government, while deductions are in place to ensure companies are taxed only on their real incomes. Policymakers should instead base their rationale for policy decisions under the proper definitions of subsidies and deductions. Doing so would avoid forcing the energy industry to pay punitive taxes, and will demonstrate the government's interest to treat all sectors of the economy equally.
Ultimately what's needed in 2016 is a commitment to comprehensive tax reform. This year will mark the 30th anniversary of the Tax Reform Act of 1986, the last time the tax code was reformed. America's competitiveness languishes with comparatively high corporate and small business tax rates, and a complicated tax code that's nearly 4 million words and results in excessive compliance costs. Americans' livelihoods, and our country's prospects for prosperity, can be realized through pro-growth, industry-neutral reforms to our nation's tax code. This objective is a policy priority that candidates and lawmakers of both parties can and should support.