Luke Schroeder, Columnist
Everyone knows that our nation's tax code is broken.
The code has not been significantly reformed since 1986, the year that "Top Gun" first hit theatres. While "Top Gun" has aged well, our tax code has not.
As the president recently outlined, "since [1986] our tax laws have tripled in size... and most of it is not understandable... The tax code is now a massive source of complexity and frustration for tens of millions of Americans."
He continued: "[the code] disadvantages ordinary Americans who don't have an army of accountants, while benefitting deep-pocketed special interests... this is wrong."
It is clearly time to reform this flawed system. However, this reform can't just result in incremental changes here or there. In a world of increased economic competition, when China, Japan, Mexico, Europe, and others are threatening American industries, this reform must be bold, sweeping, and impactful.
Congress must reform these main areas of the tax code: corporate rates, repatriation, individual rates and loopholes.
Modernization of corporate tax rates will rejuvenate American competitiveness in the globalized economy. Compared to all other member nations of the Organization of Economic Cooperation and Development (OECD), the 35 most industrialized countries in the world, the U.S. charges the highest corporate taxes.
According to OECD data, the combined average U.S. federal and state corporate tax rate stands at a whopping 39.1%. By contrast, the average rate paid in the other OECD member nations is nearly 15% lower. In China, our prime economic competitor, corporations are only charged 25%.
All of these percentages mean something simple: the corporate tax rates in the U.S. make our country one of the most hostile for business in the industrialized world.
It is vital that corporate rates be lowered soon. Republican plans vary, but typically propose a new corporate rate between 15% and 25%. Whatever this new, lower rate ends up being, one thing is for sure: it will energize the economy, create jobs, boost wages and encourage corporations to stay and expand in the U.S.
Tax reform should also improve repatriation policy. Repatriation, the process where domestic companies bring foreign profits home from overseas, is brutal for American companies. Under current law, companies first pay foreign taxes on their overseas earnings, and then pay up to 35% on the remainder if they wish to bring the money home.
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According to a CNBC report, domestic corporations currently hold more than $1 trillion of offshore cash. Who could blame them? A corporation that brings money into the U.S. under these circumstances would be doing a great disservice to their employees and shareholders.
The U.S. tax code should encourage corporations to invest more in America, not less. Reducing the tax charged on repatriated funds would do just that. Empowering American companies to bring their money home will lead to badly needed capital investment, and will undoubtedly lead to job creation.
The individual tax code, like the corporate code, is in desperate need of reform. The essential point is this: Americans deserve a code that is flatter and fairer, one that allows them to keep more of their hard-earned money. It's time to infuse more spending power into the American consumer.
Individuals also shouldn't have to rely on a tax specialist to wade through our nation's asinine and over complicated tax laws on their behalf. Every American would benefit from a drastically simplified code that gives them the capacity to understand and file their taxes without relying on specialists.
Changes to the individual code should also revitalize small businesses, which mostly file as individuals, and which face a top tax rate of 43.4%. According to the Small Business Association, small businesses account for nearly half of all American private sector employment -- their importance to the economy and job market is obvious. Lowering their taxes, empowering these businesses to innovate and grow, would rejuvenate main streets across America.
Finally, when the corporate and individual codes are reformed, loopholes must be slashed in turn. As the President has correctly noted, "special interest loopholes have crept back into the [tax] system". These loopholes allow well connected individuals and companies to exploit tax law to their own advantage.
No one can blame these individuals and companies for using the law to their own advantage (you would do the same if given the chance), but these loopholes aren't fair for the rest of America. Let's give every American flatter and lower rates, while also cutting loopholes to ensure fairness across the board.
Tax reform should not be a partisan issue, but an American issue. Sweeping changes to the individual and corporate tax codes, coupled with reforms to repatriation policy and the closing of loopholes, will allow the American economy to finally roar back to life.
Congress, it is time to get this done.
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