Supporters of comprehensive tax reform were given a glimmer of hope July 8 when the Senate Finance Committee released a series of reports providing a framework for a much needed overhaul to our antiquated tax code. The U.S. Chamber of Commerce has long supported and repeatedly called on Congress to enact comprehensive tax reform that promotes economic growth and creates jobs, and there’s a flicker of optimism that with these reports, we might be moving in the right direction.
While the Chamber has not settled on any specific approach to tax reform, its Board of Directors has adopted a series of principles to guide the discussion on how to mend our broken tax system. One of the greatest sources of business volatility is uncertainty so any reform should provide the requisite certainty of policy for businesses striving to expand and remain competitive at home and abroad.
The hope is that Congress can enact comprehensive tax reform as soon as possible and, in the interim, avoid the temptation to make piecemeal changes to the tax code except where absolutely necessary. If you’re planning to renovate your entire home, it doesn’t make much sense to paint the living room and leave it at that. Tinkering around the margins simply will not give American businesses the edge they need to compete.
Tax reform must allow businesses to be competitive
Comprehensive tax reform should lower tax rates to a level that will enable corporate and pass-through businesses to compete on a level playing field, with each other and against foreign competitors. It should attract foreign investment to the United States, increase capital for investment, and drive job creation and economic growth at home. The average corporate tax rate among the world’s industrialized economies is about 25%, so it's imperative the U.S. lower its top rates to levels closer to that average.
In addition, comprehensive tax reform should eliminate the bias in the current U.S. tax system against capital investment. Capital investment should be expensed or recovered using a capital cost recovery system that provides the present value equivalent to expensing with due regard to the impact the system may have on cash flow.
In regards to international tax issues, our current “worldwide” tax system should be replaced with a more competitive “territorial” system which would enable US businesses to compete more successfully in the global economy. It would also dissuade the foreign takeover of American firms and promote economic growth domestically.
Make the tax code simpler and more comprehensible
The tax code need not be overly complex and Congress should enact simple, predictable and easy to understand tax rules to improve compliance and reduce the cost of tax administration. Further, tax reform should ensure industry-specific neutrality and avoid special tax benefits or penalties targeted to one industry versus another. Tax reform should maintain a level playing field for all businesses, and allow the marketplace, not the government, to allocate capital and resources.
Change is necessary but it can also be confusing. Therefore, comprehensive tax reform should include realistic transition rules that provide adequate time for implementation and help minimize economic hardships businesses may encounter in transitioning to a new tax system.
Lastly, but no less importantly, Congress should couple comprehensive tax reform with reasonable spending restraint to put the nation’s fiscal house in order. Only through this balance can we have a tax code and an overall fiscal posture that fosters economic growth, job creation, and investment.
With the 2016 election season fast approaching, we hope comprehensive tax reform will be an integral part of the policy debate, and that Congress will act as expeditiously as possible.
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