Tax reform — the Devil Is Still in the Details

Stump speeches, floor remarks, water cooler chatter and kitchen table conversations have all characterized the U.S. tax code as “a giant self-inflicted wound” over much of the last generation. President Donald Trump has changed all that by undertaking tax reform in earnest with the release of a policy framework on how to transform the code into a tool of job creation. He plans to drum up support in a multi-state road show with a stops in Indiana and Pennsylvania already in the books. It’s about time.

To their credit, the Big Six – comprised of Trump administration and congressional leaders – released a set of bold policies that calls for lower income taxes for citizens, corporations and small businesses. U.S. businesses today pay one of the highest corporate tax rates in the developed world — as much as 40 percent in combined federal and state taxes, compared, for example, to just 25 percent in China. Slashing the tax rate for corporations to the proposed 20 percent would immediately create a more attractive environment for creating jobs in the United States and help to level the playing field as American companies compete overseas.

Further, despite the naysayers’ claims, lowering the corporate tax rate actually benefits American workers, as the nonpartisan Congressional Budget Office estimates that it is American workers — U.S. labor — who bears more than 70 percent of the burden. If companies had a reduced corporate tax rate, there would be additional negotiating room for after-tax profits with their workers, leading to increased wages.

This is key, as putting more money into the pockets of individuals and families can help to drive economic expansion. To that end, the framework also includes lowering tax rates for individual taxpayers, who today pay as much as 43 percent at the highest marginal federal tax rate. Allowing Americans to keep more of their earnings, instead of sending their hard-earned money to Washington, is a key reform that can strengthen the economy and encourage more work and investment.

Our tax system should also avoid picking winners and losers, and the president has rightly called for elimination of a wide array of loopholes, subsidies and exemptions in hopes of leveling the playing field. As a general rule, fairness in our tax code helps ensure equal opportunity for competition and avoids distorting the marketplace in favor of government’s politically favored industries. Thus, Congress should not pander to special interests and misrepresentations to target America’s energy sector, for example, with changes to tax policy.

Instead, lawmakers should remember that the hoped-for glorious era of “green” energy is years or decades of gradual building into the future. In the interim, new techniques have increased U.S. reserves, lowered U.S. energy prices, and are slowing the geopolitical efforts of Russia and others to use energy as a weapon. In addition, U.S. energy industries added 300,000 net new U.S. jobs this past year, or about one out of every seven jobs created. By treating the energy sector fairly, and acknowledging the more than 6 million Americans it employs, lawmakers can protect one of the true bright spots of the American economy.

As Congress prepares to roll up its sleeves on tax reform, goals like fairness, growth and competitiveness are vital to keep in mind. Together, they represent an approach to tax reform capable not only of transforming a federal tax code that has been frozen in amber since the 1980s, but also of jumpstarting real growth and job creation.

The key is permanence. Lawmakers must eschew temporary tax changes, particularly temporary tax cuts, which lack horsepower to pull our economy out of the ditch and add to our revenue woes. Businesses need tax reform that allows them to make long-term decisions about investments and expansion. Temporary changes lead to unsure plans and meager and ephemeral results, if any.

Congress faces a truly important opportunity to bring the vision of tax reform shared by Trump, the Big Six and the American people closer to reality. To advance this vision, they must put aside the usual party and ideological differences and translate today’s opportunity and momentum into a major and deserved win for Americans.

Tax reform must not wait; Congress must make it a priority and act responsibly now. The American people will thank them for doing so.

Dr. Jack Rafuse was an energy adviser in the Nixon administration, and he now heads the Rafuse Organization, an independent consultancy on energy, trade and security issues.

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