There is broad bipartisan agreement on the need for tax reform. Comprehensive reform is a matter of when, not if, because the current system is overly complex, inefficient and unsustainable. Making our tax system more efficient and more supportive of economic growth will have an immediate benefit to the U.S. economy — more and better-paying U.S. jobs.
We currently have a jobs problem and a growth challenge in the United States, but we must remain optimistic because many of the solutions can be implemented rather quickly. The failure to modernize our tax system has held back economic growth and hindered the ability of American companies and workers to compete in the global economy. Our corporate tax rate now is the highest among all industrialized countries. Our international tax system still is based on rules first adopted in 1909 that tax the worldwide income of American corporations, while most other advanced economies have adopted international tax rules that reflect the modern, competitive global marketplace.
The burdensome corporate tax system hinders economic growth, is inefficient and is in need of reform. The recommendations of expert panels established by President Barack Obama — including the President’s Export Council; the President’s Council on Jobs and Competitiveness; the President’s Advanced Manufacturing Partnership Steering Committee; and the President’s National Commission on Fiscal Responsibility and Reform, co-chaired by Alan Simpson and Erskine Bowles — have all included proposals for corporate tax reform that would provide:
A lower, competitive corporate rate; and
- Changes to our international tax system that reflect the reality of a modern global marketplace.
President Obama’s February 2012 Framework for Business Tax Reform calls for substantial reductions in the corporate tax rate, as does House Ways and Means Chairman Dave Camp’s October 2011 discussion draft, which also proposes adoption of a territorial tax system for foreign income.
These reforms can be adopted in a fiscally responsible, revenue-neutral manner through tax reform that promotes economic growth and includes appropriate base-broadening measures. This approach is endorsed by President Obama in the Administration’s FY 2014 Budget calling for revenue-neutral business tax reform. Base broadening can address existing distortions in the tax code and provide for more level taxation of diverse economic activities, thereby providing for a more efficient tax system. However, given the scale of changes needed for the U.S. tax system to be competitive with the tax systems of our major competitors and for these reforms to be revenue neutral under conventional government scoring, all revenues from base-broadening measures and loophole closing will need to be applied toward rate reduction and modernizing our international tax system.
This primer on tax reform provides an overview of the important corporate tax policy issues that reform must address and the benefits to the U.S. economy from undertaking reform. A modernized corporate tax system will allow American companies to better compete at home and abroad and will increase investment in the United States. The net result will be a more efficient tax system geared to economic growth and job creation in the United States.
The Business Roundtable urges Congress and the Administration to undertake comprehensive tax reform this year.
The case for tax reform is certain. The time for tax reform is long overdue.