Freedom Line Blog

The Center for Individual Freedom (“CFIF”) yesterday joined with more than 20 leading conservative organizations on a letter urging Congress to pass historic, pro-growth tax reform.

The letter, which was organized by American Action Network’s Middle-Class Growth Initiative, reads in part:

“The outdated U.S. tax code, last overhauled more than three decades ago, has rendered American job creators less competitive in the global marketplace, slowed the growth of wages, and discouraged investment in local communities across our country. We write to urge you to support meaningful, transformative tax reform that will strengthen economic growth and enable greater prosperity for America’s job creators and middle-class families.”

Read the full letter here.

As we move forward on President Trump’s tax reform proposal, which we highlighted in our latest Liberty Update, there’s encouraging news to report.  According to Rasmussen Reports, Americans are so far supportive.

By a 46% to 32% margin, Americans support Trump’s proposal to repeal the unfair “death tax,” and by a 48% to 30% margin agree that tax cuts help the economy.  Voters are also receptive to the plan “to eliminate most income tax deductions in exchange for a higher standard deduction,” which will simplify the code and benefit Americans in the lower filing brackets.

So there’s popular momentum, and now it’s up to Congress to finally get this done.

This week, we highlight how Donald Trump’s new tax outline offers a remarkably excellent framework for reigniting our economy, increasing prosperity for all Americans and making the U.S. more globally competitive.

Among other things, we note how the U.S. continues to suffer the industrialized world’s highest corporate tax rate, which Trump proposes to slash from 35% to 15%, better than the developed world average of about 25%.  In The Wall Street Journal, former deputy editor and global affairs expert George Melloan observes how our unsustainably high corporate rate has slowly eroded America’s former economic dominance:

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The slow economic growth in the U.S. over the past decade has resulted not from what the world has done to America but what America has done to itself, according to a Council on Foreign Relations study “How America Stacks Up.”  It says that the U.S. ‘depends far more on the global economy than it did two decades ago, and international trade and foreign investment are increasingly vital to the U.S.’  It also finds that while the U.S. national economy remains by far the world’s dominant one, it has grown less so over that period.

One big reason is that ‘though the United States once had among the lowest corporate tax rates in the industrialized world it now has the highest.’  As the study confirms and Republican  tax reformers in Congress understand, those high rates are not big revenue producers because multinationals choose not to bring home their overseas earnings for the IRS to grab.”

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This captures again how critical it is that we finally achieve major tax reform for the first time since Ronald Reagan’s presidency, and stop the slow erosion of economic superiority that our crippling corporate tax code has caused.

Today’s eye-opening Image of the Day, courtesy of the Tax Foundation:

Americans' Tax Burden

Today’s image of the day, courtesy of The Wall Street Journal, how $100 of your federal taxes are now allocated by the government:

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Federal Spending Allocation

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For perspective (see image below), that means that military spending has declined an alarming 22.3% since just 2011.  In contrast, since 2011 Social Security spending is up 17%, Medicare is up 15.1%, Medicaid is up 25.4%, civilian federal retirement is up 11.3%, education is up 5.3% and interest payments are up 1.8%.  Something to consider as important budget and spending battles heat up…

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2011 Comparison

Regardless of today’s election outcome, here’s an encouraging headline buried deep on Page C 8 of this morning’s Wall Street Journal:  “Tax Relief Is Likely No Matter Who Wins.”

As we at CFIF have long emphasized, the U.S. continues to suffer the developed world’s highest corporate tax rate.  In addition to suffocating domestic growth and imposing needless tax complexity on American businesses, our outdated corporate tax code also explains why corporations are forced to relocate headquarters overseas in order to survive in an increasingly competitive global marketplace.  Speaker Paul Ryan has unsurprisingly offered admirable intellectual and political leadership in promoting reform, and the good news is that oven liberals like Barack Obama understand the need for cutting rates and reducing complexity.

Accordingly, it’s refreshing regardless of one’s political leanings to read the Journal’s take:

No matter the outcome of Tuesday’s election, American companies with substantial overseas earnings, and their investors, could emerge as big winners.  Corporate tax reform that would make it easier for U.S. firms to repatriate foreign earnings has emerged as a rare issue of bipartisan consensus in Washington.  Progress on this issue is possible no matter who controls the White House and Congress next year…  Under current law, American companies with overseas earnings pay no U.S. federal tax on these profits unless and until they repatriate the money, at which time they pay the relatively high corporate tax rate of 35%.  This creates a perverse incentive for U.S. companies to house money abroad rather than reinvest it at home…

Even in a divided-government scenario, for example, with Mrs. Clinton as President and a Republican-controlled Congress, it seems likely that companies can look forward to a one-time break on repatriated earnings and a lower tax rate going forward.”

And as the Journal notes, the positive effect would likely be substantial:

The last time there was such a repatriation tax holiday was in a law passed in 2004, and the effects were dramatic.  Companies brought home $299 billion of overseas earnings in 2005, up from $82 billion the previous year, according to the Bureau of Economic Analysis.”

Far preferable to a mere one-time repatriation tax holiday would be a permanent reduction in the corporate tax rate below the developed worldwide average around 20%, and removal of Byzantine complexity.  Regardless, the likelihood of tax reform whoever wins tonight offers welcome news as an oftentimes bleak election concludes.

Tonight, millions of Americans will tune into the final Presidential debate between Donald Trump and Hillary Clinton.  Among the central topics should be the economy, which recent polling shows remains voters’ foremost concern.

Unfortunately, voters haven’t heard enough from either candidate on that topic during the first two debates.

Which is tragic, because this election itself has taken a toll on the economy.  According to a recent poll of economists, rhetoric from both campaigns has had a negative impact on economic growth over the past few months.  Accordingly, rather than continuing to argue about personal issues and mutual animosities, both candidates must do a better job of improving economic optimism and confidence by advocating pro-growth policies that will help us proper.

And in that vein, perhaps no issue merits focus more than comprehensive tax reform.

During the first debate, taxes and potential plans received brief discussion.  Both candidates agreed that a significant problem exists with companies moving to other countries and protecting their earnings abroad from excessive U.S. taxes. Trump correctly pointed out that the reason many companies leave is that our corporate rate remains the highest in the developed world.  Indeed, a recent Mercatus Center study highlighted how the increasing number of corporate inversions result from that inglorious distinction, and how lowering the rate will go a long way toward keeping American companies here so that they can create jobs and generate tax revenues domestically rather than abroad.

But more discussion and detail is critical.  Over thirty years ago, on September 26, 1986, the Senate began debate over comprehensive tax reform legislation that the House of Representatives had approved.  Incredibly, our tax code has not been reformed in a meaningful manner during the ensuing 30 years despite tectonic evolution of the U.S. economy during that time period.  It’s therefore past time to modernize the code and reformed so as to help American businesses of all sizes, rather than continuing to hinder growth and opportunity.

And on that point, we need concrete plans from Mr. Trump and Secretary Clinton.

Demonstrating his own commendable leadership on this critical matter, Speaker of the House Paul Ryan recently stated that tax reform is his top priority in 2017.   He rightly explained that the first thing that needs to be accomplished next year is “a budget that gets tax reform, that gets this debt and deficit under control.”   Clearly, Speaker Ryan realizes that the American people welcome discussion about how the federal government can actually enact policies beneficial to the economy and their own individual finances.  Whoever enters the White House this coming January must work with Congress to reform our tax code as soon as possible, which is precisely why we need to hear their ideas on how to best accomplish that.

To his credit, Trump has proposed a tax reduction for all businesses from 35 percent to 15 percent.  And to her credit, Clinton acknowledges that lowering the corporate rate would encourage companies to repatriate funds stranded overseas.  That’s obviously a step in the right direction, but the American people need to hear more specifics – a simplified code and lower rate, in particular – and a timeline for when they plan to enact that type of reform.  While their rhetoric on the issue is occasionally encouraging, voters must learn which candidate will work to fix the tax code in order to improve our economy the fastest.

This election has obviously been among the most contentious in our nation’s history, and policy has too often taken a back seat to personality.  While that may at times provide shallow entertainment, it’s time to put the personal attacks aside and hear more about both candidates’ visions for the economy.  Hopefully, that will mean devoting more time toward discussing tax reform and economic growth, not bickering over issues that ultimately has little impact on Americans’ everyday lives and needs.

Inexplicably, the U.S. stubbornly maintains the developed world’s highest corporate tax rate.  We also hold the inglorious distinction of taxing income earned overseas a second time, even after taxes were already paid in the nations where it was earned.  Obviously, that only incentivize businesses to leave America for more hospitable foreign shores and take jobs with them.

A simple illustration courtesy of The Wall Street Journal drives home the point:

The U.S. system of worldwide taxation means that a company that moves from Dublin, Ohio to Dublin, Ireland, will pay a rate that is less than a third of America’s.  A dollar of profit earned on the Emerald Isle by an Irish-based company becomes 87.5 cents after taxes, which it can then invest in Ireland or the U.S. or somewhere else.  But if the company stays in Ohio and makes the same buck in Ireland, the after-tax return drops to 65 cents or less if the money is invested in America.”

When people wonder why over seven years of economic “recovery” doesn’t feel like a recovery at all, this is a leading reason.  Our unsustainably high rate and double-taxation regime is simply unacceptable, but the good news is that the coalition favoring reform is bipartisan.  That’s an encouraging sign regardless of who wins in November, but it’s time to finally get this done before even more businesses and jobs move overseas.

In an op-ed published yesterday in The Hill, CFIF’s Timothy Lee explains why President Obama and the Treasury Department are wrong on corporate tax inversions and the only way to prevent them is to enact comprehensive tax reform now.

The simple reality is that our corporate tax rate of 35% – the highest among OECD nations – jeopardizes every domestic corporation’s very survival in an increasingly competitive global economy. Moreover, because public corporations remain under a legal fiduciary duty to their shareholders to run the most efficient operation possible, America’s unsustainably high tax rate leaves them with little choice but to explore inversion opportunities.

Tragically, even President Obama understands that reality. On several occasions, he has called for comprehensive tax reform that included lowering the corporate tax rate to a more globally competitive level. It defies logic and experience that the president called for lower tax rates out of some sentimental affection toward American corporations. Rather, he clearly understands that cutting America’s corporate tax rate allows domestic businesses a better chance of growing and competing on the international stage.

To remedy the situation, Congress must take concrete steps towards comprehensive tax reform now…There is still enough time in 2016 to achieve a deal.

Amid Barack Obama’s latest campaign to increase taxes, Gallup offers some welcome news this morning.  Specifically, Americans’ satisfaction with the amount we pay in federal taxes has now fallen to a 12-year low:

Americans’ satisfaction with the amount that Americans pay in federal income taxes roughly ties the lowest percentage Gallup has seen in the past 12 years…  According to the January 5-8 poll, 63% of Americans this year are dissatisfied with the amount Americans pay in taxes.  In a follow-up question, most of this group – equivalent to 46% of all Americans – say they would like to see Americans pay less in taxes.  Hardly any – 4% – would prefer that they pay more.  An additional 13% are dissatisfied with what Americans pay in taxes, but aren’t specific about how it should change.  The 46% who currently want taxes decreased is notably higher than what Gallup has found since 2012.”

Moreover, the latest survey confirms Obama’s trademark reverse-Midas touch, as his desire to raise taxes appears to have only backfired:

Six years into Barack Obama’s presidency, public satisfaction with taxes is at a low ebb, and nearly half of all Americans are dissatisfied and would like to see the amount people pay decreased.”

Accordingly, conservatives and libertarians continue to win the war of ideas in this regard.  It’s now a matter of the new Congress internalizing public opinion, and putting a quick halt to Obama’s scheme.

Sounds like no one prepped President Barack Obama for the obvious question posed by ABC’s George Stephanopolous: “How do you respond to the argument, a future president comes in and wants to lower taxes. Doesn’t happen. Congress won’t do it; so he says ‘I’m not going to prosecute those who don’t pay capital gains tax.’”

After dithering a bit, Obama replied with, “The vast majority of folks understand that they need to pay taxes, and when we conduct an audit, for example, we are selecting those folks who are most likely to be cheating. We’re not going after millions and millions of people who everybody knows are here and were taking advantage of low wages as they’re mowing lawns or cleaning out bedpans, and looking the other way.”

Stephanopolous pressed harder. “So you don’t think it’d be legitimate for a future president to make that argument?”

Without a hint of irony, Obama says, “With respect to taxes? Absolutely not.”

And yet the president has no reason in principle for limiting his successors in office from willfully disregarding whatever laws they don’t like. The former constitutional law professor seems to be completely unaware of the precedent he is setting by unilaterally suspending immigration enforcement. If left unrebuked, this action will teach future Oval Office occupants that the rule of law can – and at times should – be replaced with the whim of one.

The only saving grace in this interview is that the President of the United States seems genuinely clueless as to the logic of his own order. Such is the state of the chief executive.

H/T: Media Research Center

Below is one of the latest cartoons from two-time Pulitzer Prize-winner Michael Ramirez.

View more of Michael Ramirez’s cartoons on CFIF’s website here.

Below is one of the latest cartoons from two-time Pulitzer Prize-winner Michael Ramirez.

View more of Michael Ramirez’s cartoons on CFIF’s website here.

In this week’s Freedom Minute, CFIF’s Renee Giachino explains how a pending lawsuit challenging certain ObamaCare IRS subsidies not explicitly authorized in the Affordable Care Act could doom the entire health care law.

CFIF’s Renee Giachino explains how President Obama’s push for higher taxes, bigger government and expanded welfare programs is the wrong approach to help the greatest number of people climb the economic ladder.

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, which are 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 achieved bipartisan agreement, with Barack Obama himself proclaiming, “Our corporate tax rate is too high.”  Accordingly, the time is now to enact reduction and reform, lest America’s legacy of economic leadership deteriorate further.

In this week’s “Freedom Minute,” CFIF’s Renee Giachino discusses how, in the midst of scandals surrounding Benghazi, the IRS and DOJ conducting surveillance on the media, Congress recently decided to scrutinize an iconic American company “for failing to pay taxes that it didn’t owe.”

Giachino points to this latest lunacy as further evidence supporting the need for corporate tax reform that includes lower rates to bring more business back to the United States, create more jobs and generate more revenue for the treasury.

In this week’s Freedom Minute, CFIF’s Renee Giachino discusses the president’s budget proposal and how its calls for even higher taxes, higher spending, bigger government and more empty promises will do nothing to get us out of the Obama recession.