Secretary of Commerce John Bryson today released a report, "The Competitiveness and Innovative Capacity of the United States,"* on the policies needed to strengthen the U.S.'s ability to remain a global economic leader. There's much to commend in the document.
Congress required the report when it passed the (BRT-supported) America COMPETES Reauthorization Act of 2010, signed into law by President Obama in January 2011. The Commerce Department news release on the report highlights three findings:
Although the prepared materials did not empahsize the issue, we find it notable that the report cautiously endorses corporate tax reform to improve American competitiveness. Excerpt:
The combination of a high statutory rate and numerous deductions and exclusions results in an inefficient tax system. The high statutory rate discourages saving and investment, while the features that limit the tax base favor debt over equity, encourage investment in certain favored assets over other kinds of investment, and drive capital out of the corporate sector into noncorporate forms of business. There are also inefficiencies due to the way the United States taxes the foreign income of U.S. multinational corporations. The lower foreign corporate tax rates, along with the fact that other countries use a territorial system of corporate taxation, places U.S. multinational companies at a cost disadvantage.
Finally, according to the President’s Economic Recovery Advisory Board, the complexity of the code and its incentives for tax avoidance result in costs to firms that are “estimated to exceed $40 billion per year or more than 12 percent of the revenues collected. All of these factors act to reduce the productivity of American businesses and American workers, increase the likelihood and cost of financial distress, and drain resources away from more valuable uses.” Given the inefficiencies described above, proposals to reform the corporate tax code would likely trade a lower statutory rate for a broader tax (that is, fewer provisions that favor one type of investment over another) while also, perhaps, dealing with the unequal treatment of U.S. multinationals relative to other countries.
Now that the Commerce Department has embraced the changes, we look forward to the White House's proposal for comprehensive corporate tax reform; President Obama's State of the Union address later this month is the natural venue for such a proposal. As BRT President John Engler testified in September before the Senate Finance Committee, what's needed is a lower and flatter corporate tax rate combined with a move toward a competitive territorial system.
* Innovative capacity? It's a term of art, apparently, and the law specified that the study examine "innovative capacity," but the term seems too jargony if the goal is to communicate important policy goals to the American public. Thankfully, in his remarks, Secretary Bryson talked clearly about innovation. News coverage:
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