A Breakthrough on Comprehensive Tax Reform?

It is an oft-heard criticism that Congress and the White House are too addicted to political brinksmanship and last-minute budget and tax fixes to make any meaningful progress on long-term solutions. While there is some truth to that charge, the budget package passed in December may be a sign that the impasse on comprehensive tax reform may about to be overcome.

Tonight, President Obama is expected to discuss the economy in his final State of the Union address.  With the economy getting its footing, he would do well to advocate putting measures in place — like tax reform — that will propel us to greater growth and job creation.

The $680 billion tax bill approved last month has, according to many observers, paved the way for serious discussion of tax reform as Congress gets set to begin its work for 2016. Now is the time to put the nation’s interests first, and set aside partisan attempts to score points with our economic future. We have wide agreement that our outdated and unwieldy 14,000-page tax code is a drag on economic growth. Our top corporate tax rate, at 35 percent, is among the highest in the world and harms our competitiveness in global markets.

House Ways and Means Committee Chairman Kevin Brady (R-Texas) wants to focus on international tax reform this year. He said that a corporate rate of 20 percent or lower is needed to keep America competitive for the long run. Comprehensive corporate tax reform would curb tax “inversions,” the practice of incorporating in foreign countries for a lower tax rate, by providing an incentive for American companies to stay right here in the United States.

The Ways and Means Committee, Brady said, is looking at “creating incentives to bring innovation companies back to the U.S., looking at some tailored approaches that — driven by urgency by the changes in the tax laws around the world — could help us stem those job losses.”

In the tax bill, Congress finally came to grips with tax extenders, a grab bag of dozens of special breaks that recur annually for short-term renewal. Some lawmakers are hoping that the tax package will mean the end of the recurring need to extend dozens of tax breaks with expiration dates. Congress made many of the temporary measures permanent, such as the one for corporate research and development programs, eliminating the need for year-end horse trading and political posturing.

“It changes the whole dynamic,” said Sen. Rob Portman (R-Ohio). “The extenders has been a huge political and policy issue, with a whole army of lobbyists. Most of that is now resolved.”

Maybe now we can finally move away from the temptation to use the federal tax code to pick winners and losers in the market. What we should strive for is a comprehensive reform package that is fair, simplified and industry neutral.

And maybe now we can drop the long-running campaign to raise taxes on a domestic energy sector that pays an effective tax rate among the highest of any U.S. industry. This was a politically motivated project from the outset, as evidenced by the disingenuous use of the term “subsidy” to describe cost recovery measures used by oil and gas firms. There are no federal subsidies for domestic energy producers.

If, as leaders of both parties say, we want an “all of the above” energy policy for America, let’s drop the business of imposing punitive new taxes amounting to billions of dollars on one of the most economically important industries we have. Because so much in our dynamic economy depends on abundant and affordable sources of energy, we should not politicize the tax issue. A tax on energy is, at bottom, a tax on all Americans.

As we move into the New Year, it is time to recognize that broad based comprehensive corporate tax reform is way past due. We have not made significant progress for almost 30 years, since passage of the Tax Reform Act of 1986.

It is time to roll up our sleeves and get down to specifics. Tonight is the right opportunity for the president to commit to comprehensive tax reform and truly grow the economy by making sure all sectors of the economy are treated equally.

Demian Brady is the Director of Research for the National Taxpayers Union.