Tax Reform Could Be on the Congressional Horizon

Recently-elected House Speaker Paul Ryan (R-Wisc.) sat down with 60 Minutes during which he touched upon a wide range of issues, including the prospect of tax reform in the coming year.

Speaker Ryan noted that it was possible to work with the Democrats and President Obama on issues both parties agree on stating that, “Look, if we can find common ground, we can on highways, we will on funding the government, hopefully we can on tax policy. Those are three things that will produce certainty in this economy in the next few months. Let’s go do that.”

That is good news because people from all walks of life want real tax reform at the individual and corporate level.

His comments certainly give rise to the hope that Congress will attempt to tackle reform of a complex tax code that not only runs around 3.9 million words, but in his words “punishes our small businesses, which is where most of our jobs come from.”

When asked three things he would do on tax reform, Speaker Ryan answered he would simplify the tax code, “collapse the rates down to two or three,” and change our international tax system “so businesses can take their money and bring it back home so American businesses stay American businesses.”  He would also drop the business tax rate.  Again he is spot-on in his assessment.

The recent announcement that Pfizer, Inc. and Allergan PLC will be merging to achieve a lower tax burden in Ireland shows the urgency of corporate tax reform.  But, business tax reform isn’t just about corporations.  It’s also about the small and medium size businesses throughout the nation that are a driving force in our economy.

Not only does the United States currently have the world’s highest corporate tax rate but it also operates under a worldwide system of taxation that means the government taxes all business income of companies.  Compare this to the territorial system most countries operate – taxes are only collected on income earned within their borders – and you’ll see why our companies operate at a disadvantage in the global marketplace.

If Congress does indeed embark on tax reform, particularly business tax reform, they must be careful about keeping their eye on the ultimate goal rather than letting the process get derailed by attempts to use the tax code as a battering ram on certain industries.

Democrats tend to think they can get to tax reform by punishing the rich or the oil and gas industry, a move that makes no economic sense.  There is no reason to inflict economic harm on an industry that not only contributes to the economy, but has spent $43.6 billion in capital investment in 2014 alone.

The country needs comprehensive tax reform that is pro-growth and simplified, allowing American businesses to compete on the global playing field.  Picking winners and losers is not the way to get there.