This just in from the Common Sense Department: The tax reform package proposed by the White House and congressional leaders is the ticket to dramatically enhancing the country’s global competitive standing and will be the catalyst for reaching the administration’s stated goal of at least 3 percent economic growth.
The US hasn’t seen a comprehensive tax reform deal reached since the Reagan administration. In the ensuing 30 years, the tax code has become more complicated, larded with special exemptions and dodges, and much less competitive. While we’ve stood pat, with both parties engaged in political malpractice, other countries have passed us by, making their shores much more welcoming to investment. When was the last time you heard a foreign leader aspire to make their tax system look more like ours?
The 1986 package passed with bipartisan support; this one can too. If lawmakers set about the serious business of legislating and dealmaking, all taxpayers – individuals and businesses in blue states and red ones – will emerge as winners.
Let’s remember the economy did very well for a generation after the reform package became law. We can experience similar prosperity again.
A corporate tax rate that gets us back in the game against global competitors
The administration plan proposes to reduce the US’ highest-in-the-industrialized-world 35 percent corporate tax rate to a much more competitive 20 percent, which slots in below the global average of 22.5 percent.
A corporate tax rate reduction is desperately needed, as US job creators have gone looking overseas for friendlier tax environments, some reorganizing themselves abroad in something know as an inversion.
Cut the corporate rate big time and give US job creators the fuel to grow here and hire here.
The administration also wants to bolster small business. Its desire to reduce the tax rate for businesses organized under the individual portion of the code and eliminate the estate tax are also important, as is its plan to allow for the immediate expensing of new investments, giving a jolt to the economy as manufacturers and others move to make big machinery and equipment purchases.
A repatriation policy that brings capital back home
The exact rate will have to be hashed out by Congress, but the framework of a deal endorsed by congressional leaders and the president proposes a one-time, low tax rate on overseas earnings brought back home. It’s estimated that over $2.5 trillion in earnings is locked up overseas. That low repatriation rate, combined with a shift to a territorial tax system, is a need-to-have – not a nice-to-have – to repair our country’s broken tax system.
To naysayers who moan that such a policy is a special deal for big business, I ask whether they’d prefer that those dollars remain beyond our borders. The current US tax policy tells job creators to get out, and stay out.
A modernized repatriation policy puts valuable capital back to work in the US economy, and in workers’ paychecks.
A simpler code, a better deal for taxpayers
The reform framework emphasizes simplification. It takes the current tax code’s seven tax brackets, and moves them to just three, at 12, 25 and 35 percent (the Capitol Hill wheeling and dealing might create a fourth tax bracket for high-wealth earners), and eliminates a number of deductions.
The framework also proposes a better deal for all taxpayers. The standard deduction will be roughly doubled to $12,000 for single filers and $24,000 for married couples, and the child tax credit will be expanded.
The Big Six and the president need to make the case…and so do we.
Much of the responsibility for selling tax reform to Congress and the American people falls to the so-called Big Six: Treasury Secretary Steve Mnuchin, National Economic Council Director Gary Cohn, Senate Majority Leader Mitch McConnell, Senate Finance Committee Chairman Orrin Hatch, House Speaker Paul Ryan and House Ways and Means Committee Chairman Kevin Brady. But the president and vice president, who knows from his time as governor of the positive difference smart tax reform can make, will have to get personally involved to see a deal through to passage.
The president has the right instincts on tax policy. It’s time for the business community to help provide the grassroots support to get this effort to his desk.