Setting Steven Mnuchin's Tax Priorities in 2017
Following his anticipated confirmation, Treasury Secretary nominee Steve Mnuchin will exert tremendous influence when it comes to reshaping America’s burdensome regulatory agenda and fixing our outdated, complex tax code.
To help fulfill incoming President Donald Trump’s campaign promise to spur investment and power job growth in a thriving U.S. economy, Mr. Mnuchin should move quickly toward industry-neutral, comprehensive corporate tax reform. Doing so will reverse eight years of the Obama administration’s regulatory overreach and punitive business tax policies.
Rhetoric from both sides of the political aisle indicates a bipartisan appetite for tax reform, and for good reason. America’s combined corporate income tax rate of 39 percent hampers investment, discourages innovation, and slows job growth. While foreign corporations face a worldwide top average tax rate of 22.5 percent, U.S. industries are at a distinct competitive disadvantage on the global stage.
The rate itself is onerous, but so too, are the regulatory burdens of the Obama era. One prime example would be the regulations Mnuchin’s predecessor promulgated under Section 385 of the Internal Revenue Code late last year. Billed as an answer to “corporate inversions” – occurring when a U.S.-based company merges with a foreign entity and relocates its headquarters overseas in order to lower its tax burden – these regulations sought to reclassify debt as equity and then tax the gross values of merger transactions at America’s elevated rate.
The proposed Section 385 rules drew widespread criticism from a variety of affected parties, including large and small businesses, banks, consumers, Members of Congress, and even former Treasury officials. The Wall Street Journal called them a “misguided assault on American business.” Although the final regulations were modified somewhat to address those concerns, , they still represent an ill-conceived expansion of government intrusion into the private marketplace, and Mr. Mnuchin should repeal them.
As a matter of both principle and prudent policy, Mr. Mnuchin should place at the top of his to-do list comprehensive tax reform that lowers business tax rates across the board. Last summer, House Speaker Paul Ryan and House Ways and Means Committee Chairman Kevin Brady unveiled a plan that would accomplish both.
Called “A Better Way,” the Ryan-Brady plan offers a blueprint for transforming America’s complex and burdensome tax system into one that actually encourages investment, especially for entrepreneurs and small businesses looking to plow their revenues back into their companies. It would lower our corporate rate to 20 percent, eliminate and streamline various exclusions, deductions, and special-interest provisions, and allow for full and immediate expensing of all investments.
The non-partisan Tax Foundation concludes that the GOP blueprint “would raise American GDP by 9.1 percent in the long run, lift wages by 7.7 percent and add some 1.7 million jobs.”
Of course, comprehensive tax reform can succeed only if it avoids discriminating against any sector of the economy like traditional energy producers. This, too, would be a welcome departure from the Obama administration’s approach, which in 2016 sought to add $10.25 per barrel to the federal tax on oil, along with singling out American oil and gas producers by denying them key tax provisions enjoyed by nearly all American manufacturers.
The Ryan-Brady “A Better Way” blueprint targets neither U.S. energy producers for punitive taxation, nor discriminates against them. Applying tax rates uniformly across all sectors of the economy not only is fair; it represents smart business practice, an oft-professed priority of the incoming Trump administration.
In the 2016 edition of its annual “Investment Heroes” list, the Progressive Policy Institute named traditional energy producers as the second most important investor in America’s infrastructure, contributing more than $33.8 billion in 2015 alone and $160 billion between 2011 and 2015. That investment should be celebrated and encouraged, not penalized by discriminatory taxation.
Steve Mnuchin has a complex task ahead of him, but a simple goal: a tax code that is pro-growth and pro-investment. It’s up to Republicans and Democrats in Congress to work with him in order to achieve that goal and attract idle people back into the labor force for jobs in the private sector rather than in government offices, where much of the employment growth has been over the past eight years.