A moment with the Congressman
Tax reform
The harsh reality is that America has become a woefully uncompetitive place to do business. With the highest corporate income tax in the developed world, it should not be a surprise that many multi-national companies are relocating to countries with better business climates. Fortunately, with the election of President Trump, there is a clear opportunity to make America the most competitive country in the world.
With a businessman in the White House, Congress has an opportunity to legislate in a more results-driven manner. That begins with identifying the problem. According to the OECD, the U.S. has the highest marginal corporate tax rate in the developed world. Worldwide corporate income tax rates have fallen from 30 percent in 2003 to 22.5 percent in 2016. Meanwhile the U.S. has remained at 35 percent.
A high corporate tax rate is not just a Wall Street problem; it’s a Main Street problem too. This is largely because corporations – or any business entities for that matter – do not pay taxes, people do. The large burden of the U.S. corporate tax rates falls on three categories of people: shareholders, customers and employees. As the Congressional Budget Office has pointed out, corporations must maintain their profit margin to satisfy shareholders, so they pass on any additional corporate taxes to customers or workers. Customers, however, are increasingly price sensitive, which means that American workers are taking the brunt of our anti-competitive system.
Indeed, the disparity between the U.S. corporate income tax rate and the rest of the world is the real driver of many of our problems. It’s hard for U.S. companies to compete against companies based in Canada where the federal corporate income tax rate is 15 percent, Ireland with 12.5 percent and even the UK will be at 17 percent by 2020. Businesses set their prices to be competitive; the US has to set its corporate rate to compete as well.
President Trump understands this dynamic and his budget contemplates controlling expenses. Now it’s time to make America competitive and that begins with drastically cutting the corporate rates. That is how we can make America great again.
So as Congress and the President tackle tax reform, it’s critical to remember that the perfect should not be the enemy of the good. Perfect would be a permanent and comprehensive tax reform package; good would be getting the corporate income tax rate down, even if it’s only temporary. As history reminds us, 99 percent of the temporary tax cuts in 2001 were eventually made permanent.
With a businessman in the White House, Congress has an opportunity to legislate in a more results-driven manner. That begins with identifying the problem. According to the OECD, the U.S. has the highest marginal corporate tax rate in the developed world. Worldwide corporate income tax rates have fallen from 30 percent in 2003 to 22.5 percent in 2016. Meanwhile the U.S. has remained at 35 percent.
A high corporate tax rate is not just a Wall Street problem; it’s a Main Street problem too. This is largely because corporations – or any business entities for that matter – do not pay taxes, people do. The large burden of the U.S. corporate tax rates falls on three categories of people: shareholders, customers and employees. As the Congressional Budget Office has pointed out, corporations must maintain their profit margin to satisfy shareholders, so they pass on any additional corporate taxes to customers or workers. Customers, however, are increasingly price sensitive, which means that American workers are taking the brunt of our anti-competitive system.
Indeed, the disparity between the U.S. corporate income tax rate and the rest of the world is the real driver of many of our problems. It’s hard for U.S. companies to compete against companies based in Canada where the federal corporate income tax rate is 15 percent, Ireland with 12.5 percent and even the UK will be at 17 percent by 2020. Businesses set their prices to be competitive; the US has to set its corporate rate to compete as well.
President Trump understands this dynamic and his budget contemplates controlling expenses. Now it’s time to make America competitive and that begins with drastically cutting the corporate rates. That is how we can make America great again.
So as Congress and the President tackle tax reform, it’s critical to remember that the perfect should not be the enemy of the good. Perfect would be a permanent and comprehensive tax reform package; good would be getting the corporate income tax rate down, even if it’s only temporary. As history reminds us, 99 percent of the temporary tax cuts in 2001 were eventually made permanent.