TO: Democratic and Republican National Convention Platform Committees
FROM: National Taxpayers Union
DATE: June 22, 2016
SUBJECT: Include Comprehensive Tax Reform in Your 2016 Platform
Overview: The United States tax code has not been updated in 30 years. In that time our population has grown by 80 million, five different presidents have resided in the White House, the Internet has become an integral part of our daily lives, and the world’s economy has become increasingly interconnected. Throughout these evolutionary developments, the way we tax has remained stagnant, which has impeded our potential for a more prosperous future. We need a tax code that allows the U.S. to flourish, and the time to make those urgent changes is long overdue. Modernizing the U.S. tax code will encourage domestic investment, create jobs and allow U.S. businesses of all sizes to better compete in a global marketplace.
A Standout Problem: Aside from the tangled maze of regulations, interpretations, exceptions, carry-forwards, and claw-backs that individuals and businesses must navigate when working through our tax system, high rates are a major problem. It starts with the corporate tax. The U.S. has the highest corporate income tax rate among the 34 industrialized nations of the Organization for Economic Cooperation and Development (OECD) – worse than countries such as Belgium, France and Sweden – consequently pushing businesses and jobs overseas. We are losing out on countless opportunities because our corporate rate encourages inversions and investments in other countries.
Reform should make the U.S. an ideal climate to cultivate more business and job creation activity; the current tax code only stifles such activity. A big way this can be accomplished is by establishing a flat, simple corporate rate of 25% or lower.
Bipartisan Support: Bipartisan agreement is a rarity these days, but tax reform is an issue that a majority of both Democrats and Republicans can embrace. A recent Gallup poll found the economy ranked as the top 2016 election issue for voters from both parties. Furthermore, a Morning Consult poll released last year reported that 77% of voters said tax reform should be a priority, with 39% saying the issue should be the most important priority.
It is hard to find an elected official in Washington who would argue for keeping the tax code the way it is now. Leaders on both ends of Pennsylvania Avenue support some sort of modernization of the system, but the American people need action, not more rhetoric.
Guidelines to Grow the Economy and Create Jobs: There are several basic dos and don’ts when it comes to tax reform:
We need to make the tax laws fairer and simpler for every American. Our tax code must benefit everyone – it should not pit individuals or businesses against each other;
Tax reform should set the corporate rate at a competitive 25% or lower, broaden the tax base, and bring tax treatment of income earned abroad into line with policy trends around the world. The objective must be to address the reasons businesses are leaving our shores, rather than to impose more punitive and complex rules on “inversions” that ultimately won’t work.
The tax system must also be made more transparent and administrable. The latest analysis from National Taxpayers Union Foundation estimates that the value of the time plus out-of-pocket costs expended annually on complying with the individual and corporate Tax Code amounts to an economic loss of $234.4 billion. Even when adjusted for obvious differences like population size, the time and expense burden is proportionally worse in the U.S. than in many other industrialized countries.
And simply put, we need a comprehensive solution that does more than engage in window-dressing. The next President and Congress should put forth a plan that promotes growth and addresses major issues in our system.
Conclusion: Past and present mistakes with U.S. tax policy provide vital guidance to elected officials in both political parties, but they must also look to the future. As NTU Foundation, our research arm, concluded in a paper earlier this year:
Forcing a few companies to remain in the U.S. might earn politician’s plaudits; but it also constrains future economic growth while sending a counterproductive message to would- be entrepreneurs. Consider that each year about 5 million new businesses are formed in the United States – a figure that has unfortunately plateaued over the past decade. Fewer new businesses and start-ups will originate in the United States if we fail to offer an environment that encourages growth and expansion. No law passed by Congress or regulation issued by Treasury can prevent a new company from choosing its original country of incorporation.
U.S. businesses and taxpayers deserve an economic future that fosters job creation, wage increases, innovation, and entrepreneurship. And they cannot afford to keep waiting for a simpler tax code that helps to achieve it. The next administration should work with Congress to enact comprehensive tax reform within the first 100 days in office.
*National Taxpayers Union, “The Voice of America's Taxpayers,” is a nonpartisan, nonprofit organization working for lower taxes, smaller government, and economic freedom at all levels. More information on NTU's work is available at www.ntu.org.