Tax re­form to jump-start the econ­omy

Three steps would break the Obama-era fet­ters

The Washington Times Daily - - OPINION - By Gayle Trot­ter Gayle Trot­ter is a tax at­tor­ney and po­lit­i­cal an­a­lyst.

Memo to the con­gres­sional Repub­li­cans in whose hands tax re­form cur­rently rests: Do not let the per­fect be the en­emy of the good. Pres­i­dent Trump’s tax re­form plan prom­ises to reen­er­gize the Amer­i­can econ­omy, cre­ate jobs and slow the in­crease of the na­tional debt. You might say that the Trump tax plan will “fun­da­men­tally trans­form the United States of Amer­ica” af­ter “decades of bro­ken pol­i­tics in Wash­ing­ton” and “eight years of failed poli­cies” un­der his pre­de­ces­sor’s ad­min­is­tra­tion — to use Barack Obama’s words from 2008.

Repub­li­cans in both Houses must work with Mr. Trump to im­ple­ment tax re­form in three key ar­eas. First, re­duce the cor­po­rate tax rate and elim­i­nate the cor­po­rate catch-all al­ter­na­tive min­i­mum tax, or AMT. Sec­ond, al­low im­me­di­ate ex­pens­ing of cap­i­tal in­vest­ments. Third, im­ple­ment a one-time tax for ex­ist­ing de­ferred for­eign earn­ings of U.S. multi­na­tion­als.

To­gether, th­ese three steps would rev up our idling econ­omy.

The United States im­poses ab­surdly high and per­verse tax rates on U.S. cor­po­ra­tions rel­a­tive to other na­tions com­pet­ing for cap­i­tal in our global econ­omy, as a re­cent Con­gres­sional Bud­get Of­fice study in­di­cated. Of the G20 na­tions, the United States im­poses a whop­ping 39.1 per­cent top statu­tory tax rate.

Ja­pan and Ger­many, pre­vi­ously the top of­fend­ers, woke up and re­duced their statu­tory cor­po­rate tax rate, ced­ing the top spot of ig­nominy to the United States in 2012, the most re­cent year for which data are avail­able.

In the same study com­par­ing av­er­age cor­po­rate tax rates, the 29 per­cent im­posed by the United States is more oner­ous than ev­ery other G20 coun­try other than Ar­gentina and In­done­sia, nei­ther of whose economies we as­pire to em­u­late.

Our high tax rate is largely to blame for U.S. com­pa­nies vot­ing with their feet by us­ing tax in­ver­sion trans­ac­tions to change their domi­cile so they can take ad­van­tage of lower tax rates in over­seas ju­ris­dic­tions.

The pres­i­dent’s tax pro­posal re­leased be­fore the elec­tion pro­posed a cor­po­rate tax rate of 15 per­cent and the elim­i­na­tion of cor­po­rate AMT. An al­ter­na­tive plan pro­posed last year by the House Ways and Means Com­mit­tee con­tem­plates a 20 per­cent rate as well as elim­i­nat­ing AMT.

The lower rate would more ef­fec­tively jump-start our econ­omy, cre­ate jobs and dis­cour­age in­ver­sions to tax-friendly ju­ris­dic­tions such as Ireland, which boasts a roughly 12 per­cent cor­po­rate tax rate. That said, even a re­duc­tion to a 20 per­cent rate would move the econ­omy to­ward growth. The pres­i­dent and law­mak­ers should not let the per­fect be the en­emy of the good.

Like­wise, chang­ing our tax code to al­low the im­me­di­ate ex­pens­ing of cap­i­tal in­vest­ments would en­cour­age more in­vest­ment and pro­duc­tion in the ter­ri­to­rial United States. Cur­rently, cor­po­ra­tions are stock­pil­ing cash in a risk-averse fash­ion, but this tax re­form pro­posal would free up that cash to pro­mote much-needed cap­i­tal in­vest­ments and in­cen­tivize com­pa­nies to fo­cus more pro­duc­tion in the U.S.

The third el­e­ment of the pro­posal — a one-time tax for ex­ist­ing de­ferred for­eign earn­ings of U.S. multi­na­tion­als — would fix a prob­lem that ham­strings the U.S. econ­omy. Amer­i­can com­pa­nies hold an es­ti­mated $2 tril­lion or more over­seas. The repa­tri­a­tion of th­ese funds would free as­sets cur­rently held over­seas at fa­vor­able rates de­signed to en­cour­age repa­tri­a­tion to the United States. The pro­pos­als dif­fer slightly — 10 per­cent to 8 per­cent for cash payable over eight to ten years — but ei­ther pro­posal or a sim­i­lar mea­sure rep­re­sents a ma­jor step in the right di­rec­tion.

Mr. Trump promised to im­ple­ment pol­icy changes to make Amer­ica open for busi­ness again. Cor­rect­ing the wrong­headed poli­cies of the past, and the last eight years in par­tic­u­lar, re­quires a fun­da­men­tal trans­for­ma­tion of our cur­rent tax sys­tem. Th­ese pro­pos­als are far from that. They are only the ini­tial steps to­ward a pro-growth trans­for­ma­tion of our tax sys­tem, but adopt­ing them will quickly bring sig­nif­i­cant eco­nomic ben­e­fits.

If con­gres­sional Repub­li­cans can seize the mo­ment to adopt mean­ing­ful tax changes, they will lay the groundwork for fur­ther re­form by ush­er­ing in a new pe­riod of long-over­due growth in the U.S. econ­omy.


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