Benjamin Franklin famously quipped that “nothing can be said to be certain, except death and taxes.” While taxes have certainly remained a constant facet in our political and economic lives, today’s complicated U.S. tax code creates high levels of uncertainty for American businesses. The U.S. corporate tax rate remains the highest among developed nations, and the 73,000-page code has become ridden with loopholes, tax breaks, and other stipulations that make navigating the tax system cumbersome for businesses that want to invest here.
Considering this obvious need to overhaul the existing tax code, it was encouraging to hear that both parties have decided to make tax reform a top priority in their upcoming legislative agendas. However, a recent staff draft from the Senate Finance Committee remains equally complicated as existing laws and does not bring the U.S. closer to norms in other developed countries. In summary, their internationally-focused draft includes a hybrid taxation system that would include a minimum tax level on foreign earnings. This minimum tax represents a huge deviation from other countries, keeps the U.S. on an uneven playing field, and does not remedy the loss of U.S. jobs to foreign-held subsidiaries.
The fact remains that the potential for agreement and reform couldn’t come at a better time. A report from the Joint Committee on Taxation (JCT) released last month highlights key reasons why the corporate tax system hinders U.S. competitiveness at home and abroad. Some of those top reasons include:
- Workers shoulder 25% of corporate tax costs, a considerably higher percentage than previously thought
- Much of this burden paid by workers comes in the form of lower wages, which hurts individuals and their ability to contribute to the economy
- Because high taxes increase the cost of owning business capital, companies will move to countries with lower tax rates – taking investment dollars and jobs with them
- Some companies even raise product prices to compensate for the corporate income tax, which shifts the tax burden directly to consumers
To remedy this unfavorable investment environment, we need a 21st-century tax standard that would streamline all aspects of the tax code, particularly as it compares to international competitiveness. It’s my hope that the Senate Finance Committee and other Congressional leaders adhere to these standards as they refine their international tax reform plan.
While I’m encouraged by these first sparks of bipartisan interest in tax reform, I’m also well aware that it will take many months of hard work to reach the level of agreement American businesses deserve. In the meantime, we urge Congress to take the bold action necessary to lower the corporate tax rate and streamline the tax code. American businesses, their employees, and consumers all depend on it.