As the 114th Congress begins, there’s one big issue both Democrats and Republicans might be able to agree upon: comprehensive tax reform.
The U.S. tax code, which hasn’t been updated in nearly 30 years, is archaic and full of unnecessary complexities. America’s 39.1-percent corporate tax rate is the highest in the world, significantly higher than the OECD average of 25.4 percent. By contrast, the average rate in Europe is 20 percent. In Asia, it is 22 percent.
Not every American corporation pays the full rate, but that’s because of a second major problem: Equal incomes are not treated equally. The arbitrariness and unfairness of the status quo erodes public confidence in the sacred principle of equal protection under the law.
Until recently, there has been neither the will nor momentum to overhaul the tax code. Washington has utilized a “kick the can” approach, treating symptoms of the problem rather than aggressively attacking the underlying issue. America’s employers have had to spend time and money navigating a patchwork of tax laws instead of growing their businesses.
A recent study calculated the cost to the U.S. each year it failed to lower its corporate tax rate to a globally competitive level. It concluded that in 2013, U.S. GDP was an estimated 1.2 percent to 2.0 percent lower – a loss of roughly $235 billion to $345 billion each year. Similarly, workers’ wages were found to be 1 percent to 1.2 percent lower than they would have been otherwise.
All evidence points to our high corporate tax rate as an impediment to greater success in the global marketplace. The last time our tax code underwent reform in 1986, our corporate tax rate was reduced to an internationally competitive level, and the decade that followed brought about vital economic growth. As our economy recovers, greater job opportunities created by strong growth would improve the prospects of the long-term unemployed and begin to bid up wages.
Two congressional leaders from Georgia advocate tax reform and are in positions to help make it happen. Sen. Johnny Isakson serves on the Senate Finance Committee. Rep. Tom Price of Roswell, the new chairman of the House Budget Committee, wants a tax code that encourages business growth and job creation. Both have a potential partner in President Barack Obama, who has used past State of the Union addresses and other important forums to reaffirm his support for reforming the tax code and lowering the corporate tax rate.
By and large, Republicans and Democrats agree on the primary goals of tax reform and how to go about achieving these policies.
The consequences of inaction have already taken their toll, but we have the opportunity during this new Congress to restore vibrant growth to the U.S. business sector by passing comprehensive tax reform that includes a lower rate for all businesses. Both parties agree on the problem. They know the most important components of the solution. Now, it is time for them to work together and fix it.
