Amidst a contentious campaign, presidential candidates Hillary Clinton and Donald Trump will finally meet on the debate stage tonight at Hofstra University in New York. Voters have been eagerly anticipating this first head-to-head matchup since the party conventions wrapped up this summer. And one of the three themes of the debate, “Achieving Prosperity,” will present both candidates with an opportunity to discuss comprehensive tax reform, an issue that will certainly help citizen of all economic levels.
Americans will be paying close attention to what Trump and Clinton say about tax reform during the debate. The tax code has become unwieldy and confusing with nearly 75,000 pages and 4 million words. To put that into perspective, the novel “War and Peace” has 560,000 words.
The first order of business must be to address individual tax reform. Americans spend billions of hours and dollars filling out complicated tax forms. It is time to simplify the system by collapsing the seven brackets to three and closing loopholes.
After addressing individual tax reform, it is critical to fix the corporate tax code. A recently released Harvard Business School report highlights the importance of reforming our corporate tax code in order to restore our economy and U.S. competitiveness around the world.
Significantly, the report calls tax reform “the single area with the greatest potential for immediate impact on the economy and is long overdue given changes in the global economy. Corporate tax policy has become a key obstacle to U.S. competitiveness and economic growth, and reforming both corporate and personal taxation is essential to achieving a sustainable federal budget.”
The candidates take on this monumental task in very different ways.
Clinton has vowed to restore fairness to the tax code, in part by raising taxes on the wealthy and limiting the tax deductions they can claim. Doing so will fund her proposed middle-class tax breaks that will assist working families with the increasing cost of expenses such as child care and education. On the corporate side, Clinton has made no mention of reducing the corporate tax rate, although her economic plan states she will “simplify and cut taxes for small businesses” along with closing corporate tax loopholes.
In a recent speech, Trump offered more details than Clinton when it comes to individual tax reform. His plan would collapse the current seven individual tax brackets into three, and the highest rate would drop from 39.6 percent to 33 percent. He would also expand the earned income tax credit and repeal the estate tax. Trump would significantly drop the corporate tax rate from 35 percent (39.1 percent combined) all the way down to 15 percent.
Clinton would be wise to join in the chorus of voices on both sides of the political aisle, including President Obama, in proposing a reduction of our exorbitant corporate tax rate. The United States has the highest combined rate of any advanced country and globally is second only to Chad and the United Arab Emirates, which have rates of 40 percent and 55 percent, respectively.
While other countries are taking action to lower their rates in order to keep and attract business and investment, the United States sits on its proverbial hands. In the meantime, as the Harvard report notes, “American companies continue to seek complicated corporate tax structures to mitigate the tax burden. The result is that in an era of high corporate profits, our tax policy has driven more investments (and corporate taxes) to other countries and the U.S. has suffered.”
One need only look at the nation’s sluggish economic growth to witness the damage done by a hostile tax code that pushes American companies out the door to more welcoming tax jurisdictions. As a result, funds that could be invested in the United States are instead kept offshore to the tune of $1.1 trillion in offshore balances, according to Moody’s.
Yet if policymakers lowered the corporate tax rate and moved from a worldwide tax system to the more prevalent territorial system, companies would bring profits back home. Even Apple CEO Tim Cook, who noted to the Washington Post that our current tax system is not good for the economy, jobs or investments, acknowledged “we want to bring it [money] back, and we’ve been very honest and straightforward about that.”
With a new Congress and a new president set to take office roughly four months from now, they have a unique opportunity to come together on a major policy change that will have a monumental impact on the American taxpayer and businesses – comprehensive tax reform that is simplified and uniform across all sectors. Americans are hopeful they will seize this chance, it may not come again.
David Williams is president of the Taxpayers Protection Alliance.
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