Reforming How Businesses Are Taxed
Tax reform is a lot like the weather-everyone talks about it but no one seems to do anything about it .
Incoming Treasury Secretary Henry Paulson could change that by focusing on the need for corporate tax reform .
Congress should not ignore the tax rules governing individuals, but modernizing America's business tax system is critical to promoting growth, creating jobs and narrowing the budget deficit .
In deciding how best to proceed, Secretary Paulson and Congress must recognize four things .
First, America's Tax System Must Be Competitive .
Every day we make choices based on cost: If gasoline is selling for 10 cents less on the left-hand side of the street than on the right, few of us turn right to fill up the car .
Similarly with taxes: They are a cost that a business rightly considers as it locates new plants, creates distribution networks and hires workers .
Taxes are not the only or most important cost to be considered, but they do matter .
The U.S .
system must change to remain competitive .
Second, Tax Rates Matter .
a critical aspect of tax competition is the tax rate .
Regrettably, while individual rates have been reduced, the corporate rate has remained unchanged since the 1990s .
In contrast, lowering tax rates has become the rule of the day in Europe .
Significantly, lower rates do not mean lower revenues .
Economist Martin Sullivan of the independent publication Tax Notes has confirmed that tax rate reductions in European countries have led to increased tax revenues .
Moreover, a recent study of more than 70 countries by the American Enterprise Institute strongly links lower corporate rates with higher wages .
Corporate tax reductions should do the same here .
Third, the Tax Base Matters, Too .
The amount of revenues raised by a tax system is the product of the tax rate and the tax base .
While some incentives-such as those for research and education-have wide support, a growing consensus favors lower rates and a broader tax base to reduce complexity, ease tax administration and minimize the government's role in picking winners and losers .
Fourth, Complexity Matters .
a primary advantage of lowering taxes through a rate reduction is that such a system is much easier to construct and, hence, simpler for taxpayers to follow .
Simple is good, because complexity represents a daunting, hidden tax on American business .
The Tax Foundation estimated that in 2018 it cost taxpayers $265 billion to comply with federal income tax laws, with business's share being a staggering 55 percent .
It is time to embrace corporate tax reform in order to promote growth, create jobs and reduce the trade and budget deficits .
Michael P .
Boyle is President of Tax Executives Institute, an organization of more than 6,000 corporate tax professionals.
Tax reform is a lot like the weather-everyone talks about it but no one seems to do anything about it .
Incoming Treasury Secretary Henry Paulson could change that by focusing on the need for corporate tax reform .
Congress should not ignore the tax rules governing individuals, but modernizing America's business tax system is critical to promoting growth, creating jobs and narrowing the budget deficit .
In deciding how best to proceed, Secretary Paulson and Congress must recognize four things .
First, America's Tax System Must Be Competitive .
Every day we make choices based on cost: If gasoline is selling for 10 cents less on the left-hand side of the street than on the right, few of us turn right to fill up the car .
Similarly with taxes: They are a cost that a business rightly considers as it locates new plants, creates distribution networks and hires workers .
Taxes are not the only or most important cost to be considered, but they do matter .
The U.S .
system must change to remain competitive .
Second, Tax Rates Matter .
a critical aspect of tax competition is the tax rate .
Regrettably, while individual rates have been reduced, the corporate rate has remained unchanged since the 1990s .
In contrast, lowering tax rates has become the rule of the day in Europe .
Significantly, lower rates do not mean lower revenues .
Economist Martin Sullivan of the independent publication Tax Notes has confirmed that tax rate reductions in European countries have led to increased tax revenues .
Moreover, a recent study of more than 70 countries by the American Enterprise Institute strongly links lower corporate rates with higher wages .
Corporate tax reductions should do the same here .
Third, the Tax Base Matters, Too .
The amount of revenues raised by a tax system is the product of the tax rate and the tax base .
While some incentives-such as those for research and education-have wide support, a growing consensus favors lower rates and a broader tax base to reduce complexity, ease tax administration and minimize the government's role in picking winners and losers .
Fourth, Complexity Matters .
a primary advantage of lowering taxes through a rate reduction is that such a system is much easier to construct and, hence, simpler for taxpayers to follow .
Simple is good, because complexity represents a daunting, hidden tax on American business .
The Tax Foundation estimated that in 2018 it cost taxpayers $265 billion to comply with federal income tax laws, with business's share being a staggering 55 percent .
It is time to embrace corporate tax reform in order to promote growth, create jobs and reduce the trade and budget deficits .
Michael P .
Boyle is President of Tax Executives Institute, an organization of more than 6,000 corporate tax professionals.
Reforming How Businesses Are Taxed
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June 26, 2018
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