Sometimes, if you are quiet enough in Washington, D.C., you can hear the distinct sound of supple Gucci leather creaking its way around town. And with the Trump administration now in office, and tax reform again on the horizon, the quiet sound has become a roar. The shoe polish smell alone can be almost overwhelming.
The tax lobbyists have been relegated to golf courses for the greater part of the last 30 years, but now the stars have aligned and it is their time. It isn’t just the lobbyists though: academics and policy geeks are salivating at the career-making opportunity they have to really make a difference. And, business owners, entrepreneurs, investors, and those just trying to save for retirement are more than ready and many can’t wait another day.
I am one of the policy geeks and entrepreneurs. I want to see several big changes—including the addition of immediate expensing—that will help unleash the economy.
Immediate expensing allows companies to deduct the full cost of investment immediately instead of spreading out the deduction over several years. According to Steve Entin, Tax Foundation senior fellow, “These changes alone would encourage a more efficient use of resources and more efficient mix of output. The artificially beaten-down manufacturing sector and other capital-intensive sectors would gradually recover and expand relative to the service sector.”
And, unlike some policy debates in Washington, changing the rules around expensing will actually make a big difference in the economy. In fact, according to the Tax Foundation it could create more than 1 million new jobs and add 5.4 percent to our long run GDP.
To get there, though, members will need to navigate the Gucci-lined battlefield. There are big issues on the horizon, dealing with big amounts of money, and they can easily swamp the debate. In fact, in 1986 the tax lobbyists almost killed the effort—they did kill the first bill.
Then the Chairman of the Senate Finance Committee, Bob Packwood (R-Ore.), and Bill Diefenderfer, his top aide, sat down for a lunch and beer—two pitchers’ worth to be exact—to construct bill #2. Bill #2 was simple, clean, and so succinct that the tax lobbyists couldn’t find a way in—well, at least most of them—and that version was eventually signed into law. It lowered rates to levels that the rest of the world eventually had to match and surpass just to compete.
It’s time for an update. New issues need addressing.
One of those issues is a debate over border adjustability. The basic idea is that importers currently have a tax advantage that their exporter brothers don’t. The border adjustability proposal supposedly mitigates this advantage. Some feel this is a good way to strengthen American manufactures while others think playing with borders picks certain winners and losers (i.e. exporters vs. importers).
However, if tax reform is good enough—like bill #2 in 1986—then comprehensive tax reform is a must pass for the economy. In fact, if tax rates are as low as they should be, then the economic benefits could outweigh any potential side effects of border adjustability.
Unlike some specific aspects of tax reform, the main pillars of a comprehensive plan are very simple, and almost every body agrees on them: Immediate capital expensing; lowering business rates for all companies, from mom-and-pops to multinationals; reducing individual rates; closing loopholes; and reforming the IRS.
Problems like companies leaving money abroad, or fleeing our country altogether, will stop—or at least slow—if we can get comprehensive reform. In the past 30 years other countries have figured out the benefits of our low tax rates. In fact, almost all of the OECD have caught on. Our corporate tax scheme is no longer competitive.
As tax staffers are continuously assaulted and dizzied by the strong shoe polish smell that lingers in the halls, it is our job to remind them of the importance of comprehensive reform. Congress needs to be held accountable to either pass real meaningful reform or be ready for the full assault of both lobbyists and wonks.
We need to stop treading down the path of anemic growth, and put the American Economy back on the Gucci-store path (or Outlet if you are frugal).
Charles Sauer is president of The Market Institute.
