All signs from Capitol Hill and President-elect Donald Trump indicate that tax reform will be one of the top priorities of the incoming administration. For those who have long advocated for a tax code that fosters — rather than suppresses — economic growth and investment, this is welcoming news. However, as the debate begins over the details and whether to address corporate reform or individual, or both, it’s imperative that Democrats and Republicans put aside their differences and come together to take on this monumental task. When asked about the necessity of tax reform (see video here), citizens from across the country from all political leanings said that tax reform is a priority.
The tax code is complicated, confusing, out-of-date, and it is costing Americans billions of dollars and hours on just compliance. Now, more than 30 years since the United States passed comprehensive tax reform, the country has an opportunity do it all over again. The tax code must be reformed at the individual level as well as the corporate level so that it no longer contains 4 million words nor keeps the U.S. with the highest corporate tax rate in the world. Those dubious distinctions have stifled investment and forced companies to invert or leave the country.
It is incumbent on the incoming Trump administration to work with Congress, including Democrats, to make that change a reality and do so in a bipartisan way.
Many in the GOP are well aware the perils of pushing through major legislation without the other party’s support. As Senate Majority Whip John Cornyn (R-Texas) noted: “That’s one lesson of the Obama administration. If you do things purely on the party line, then it’s unsustainable.” Senate Finance Committee Chairman Orrin Hatch (R-Utah) echoed those comments, stating, “I don’t think it can be done except in a bipartisan way.”
Thanks to the hard work by House Speaker Paul Ryan (R-Wis.) and House Ways and Means Committee Chairman Kevin Brady (R-Texas), some of the groundwork for tax reform has already begun. In June, the GOP released its “A Better Way” plan, which would radically overhaul the tax code, lowering both the individual and corporate tax rates and reducing its complexity and compliance burden so that Americans will be able to fit their tax returns on a postcard.
Trump’s tax reform plan aligns closely with the GOP’s blueprint, although his would lower the corporate tax rate to 15 percent as opposed to 20 percent. Regardless of where the final rate falls, lowering it will unshackle the nation’s businesses to fully compete in the global market, bringing a multitude of economic benefits here at home as a result.
In describing the GOP plan, Brady noted, “America, in our blueprint, will no longer stand idly by and watch our jobs, innovation and headquarters be chased overseas because of our uncompetitive tax code.”
However, in their quest to revamp the tax code, policymakers must not fall into the trap of discriminating against any one industry over others. Industry neutral tax reform will achieve the desired ends. Doing otherwise would be counterproductive and would result in harming, rather than helping our economy and the American taxpayer.
For individual tax rates, both plans would reduce the current seven tax brackets down to three and lower the rates to 12 percent, 25 percent and 33 percent, respectively. The estate tax, which hits small businesses and family farms especially hard, would be eliminated completely.
The new president and Congress have much on their plate come January: a $19 trillion debt; an economy that continues to struggle; agency regulations running wild; and an antiquated tax system. There are plenty of problems to solve and no time to waste. Comprehensive tax reform rightly occupies a top spot on the Trump administration’s priority list. And if the buzz is to be believed, this tax reform objective has a good chance of passing in the first 100 days.
While there has been some talk of using a partisan legislative maneuver called “reconciliation” to accomplish that task, the nation would be better served by a bipartisan effort. As Judd Gregg, former senator and chairman of the Senate Budget Committee, recently wrote: “When a law that is going to affect most Americans is passed, it must be viewed as fair. Fairness in our system is defined by bipartisanship.” Republicans and Democrats alike should heed that advice in the coming months.
David Williams is president of the Taxpayers Protection Alliance.
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