In recent comments, Speaker of the House Paul Ryan, R-Wis., opined that tax reform “is going to have to be one of the crown jewels of our agenda. We have to show the country how we get this economy out of neutral and how we get jobs growing, how we get wages growing, how we get America competitive again, how we get families and businesses growing again and tax reform is critical to that.”
Speaker Ryan’s comments are spot on, and he’s not the only lawmaker in Washington who realizes that it’s past time we tackle our overly complicated tax code.
There is a growing bipartisan awareness that something deeper and much more fundamental is needed to kick start American business growth: Comprehensive tax reform that is simplified and uniform. The federal tax code currently totals to some 3.9 million words and generates related federal regulations that run to more than 14,000 pages. In 2013, the burden of tax compliance alone cost the economy $224 billion — for small and larger businesses.
Comprehensive tax reform allows the economy to grow but it also could solve the spate of inversions — a result of a one-two knockout punch of the highest corporate tax rate in the worldwide taxation system. Time and time again U.S. companies see inversions as a way to reduce its effective tax rate from 26 percent to 17 percent. Corporate tax reform that includes pro-growth measures, such as dropping the corporate tax rate, would curb these inversions by providing an incentive for American companies to stay right here in the United States.
According to PolitiFact, of the 34 countries in the Organization for Economic Co-operation and Development, America ranks first with a 39.1 percent corporate tax rate, compared to an OECD average of 24.1 percent.
This figure is what’s called the statutory rate, meaning the base rate applied to corporate profits. According to the Tax Foundation, two non-OECD countries — the United Arab Emirates (55 percent) and Chad (40 percent) — have a greater statutory rate than the United States.
However, comprehensive tax reform would not be complete if we did not also address the individual income tax. Most of America’s small businesses are structured as pass-through entities, such as sole proprietorships, partnerships or S corporations. Their profits flow through to their owners for tax purposes, meaning these businesses pay individual income tax rates. In addition, small business owners are faced by an increasingly complex tax code, making it harder and harder to affordably comply with all of the required reporting. Ensuring we also address individual income tax rates and work to simplify the code is critical to our nation’s economy, while also working to make our country competitive in this global economy via corporate tax reform.
With Speaker Ryan now leading the House, we have new momentum for reform. He understands that a serious approach to a comprehensive tax overhaul, one that addresses the high effective rates in the United States, is needed now.
“It means lower rates, broader base. … And in Congress, we need to work together to forge consensus on exactly what that looks like and how we do that,” Ryan said in an interview with Bloomberg news service.
Likewise, despite urgent calls to address inversions, other congressional leaders don’t want another piecemeal approach to fixing the tax code. There are two themes that are central to any proposal that reforms our tax code, fair and simple. Senator Ron Wyden of Oregon, the ranking Democrat on the Senate Finance Committee, put it this way: “The only course of action that will stop this concerning trend of American firms continuously looking for ways to shift their headquarters overseas is comprehensive tax reform.”
Wyden, in comments published recently in the New York Times, said that “our tax code and our economy work as an ecosystem, so when Congress or the administration make changes in one area to solve an immediate crisis like inversions, there’s always a risk of unforeseen effects popping up somewhere else.” He demanded “serious political will” for bipartisan reform.
Together, in a truly bipartisan fashion, we can overhaul our burdensome and outdated tax code and in its place put a system that is simpler, fairer and one that incentives American companies to invest in our nation’s economy and create jobs.
Barbara Kasoff is president & CEO of Women Impacting Public Policy (WIPP). Thinking of submitting an op-ed to the Washington Examiner? Be sure to read our guidelines on submissions.
