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January 17th, 2014 12:51 pm
Time to Fix the Corporate Tax Code, While Fleeting Bipartisan Consensus Exists
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There is no better example of Washington’s dysfunction than the U.S. tax code.  With President Obama’s annual State of the Union Address less than two weeks away, discussion about how to fix our broken tax code is growing.  In particular, the House Ways & Means Committee released a video this week highlighting its problems, and some proposals about how to fix it.

WATCH THE VIDEO: https://www.youtube.com/watch?v=BGizlBE-u10&feature=youtu.be

The last time America’s tax code was overhauled was in 1986, under President Ronald Reagan.  Obviously, very much has changed since then, from the dot-com boom-and-bust, the rise of China as an economic powerhouse and the sub-prime mortgage crisis, just to name a few.  What’s more, the tax code continues to grow more complicated with each passing day.   According to House Ways & Means Committee research, more than 4,400 changes to the tax code have occurred in the last 10 years, amounting to about one change per day.  While other countries have been simplifying their codes and reducing rates, America’s tax burden continues to grow in scope and complexity.

While the fleeting political will do something still exists – even President Obama himself proclaimed, “Our corporate tax rate is too high” – action is urgently required.  The best solution is one that makes America more competitive globally and leads to economic growth.  America’s corporate tax rate currently stands at 35% – the highest in the world.  Accordingly, a proposal to lower that corporate rate, while broadening the base, will result in a simpler, fairer tax code that both sides of Congress can get behind.

In today’s Wall Street Journal, former Japanese Diet member Mieko Nakabayashi and former U.S. Deputy Assistant Secretary of the Treasury James Carter spell out in stark terms the need for reform and reduction of U.S. corporate taxes, now the highest in the industrialized world.  In particular, they highlight the alarming exodus of large corporations from America to more hospitable tax regimes with this statistic:

When the U.S. last cut its corporate tax rate in 1986, 218 of the world’s 500 largest corporations measured by revenue were in the U.S.  Today, that number is 137.  Similarly, the number of Japanese corporations in the Fortune Global 500 fell to 68 last year from 81 in 2005.  While there is no single explanation for the drop, Tax Foundation chief economist William McBride tells us:  ‘The common thread behind all of this is the U.S. corporate tax, which is the most punitive in the developed world.’”

We live in a period of unprecedented political polarization.  The need to reduce our corporate rate, however, has actually achieved bipartisan agreement, with Barack Obama himself proclaiming the rate too high.  Accordingly, the time is now to enact reduction and reform, lest America’s legacy of economic leadership deteriorate further.

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