Tax Reform Should Take a Starring Role at the State of the Union

Michi Iljazi

January 28, 2014

Tonight President Obama will give his fifth State of the Union address to the nation. This will give the President an opportunity to lay out his agenda for the coming year in front of Congress and the American people. Year after year we see a laundry list of policies that spend more taxpayer money and attempts to rally the President’s base behind ideas that go nowhere fast. Even though there are many topics that taxpayers would like to be addressed such as the failed roll out of Obamacare or a debt that has eclipsed $17 trillion and the numerous ways to cut spending, one topic that may receive bi-partisan support is tax reform. The US corporate tax rate is the highest in the world and our entire US tax code grows more complicated as each year sees new rules and regulations burdened upon the taxpayers who are in desperate need of relief from a system that hasn’t had comprehensive reform in nearly three decades.

This year is a prime time for tax reform to take shape and there’s no better time to set the tone for meaningful, comprehensive, and bipartisan reform than with the State of the Union. Congress will be in attendance and many of the key players in the tax reform debate will be paying careful to attention to what the President will say. With current Senate Finance Committee Chairman Max Baucus (D-Mont.) heading overseas as our the Ambassador to China, Senator Ron Wyden (D-Ore.) will be taking over and he has been working on efforts towards bipartisan comprehensive tax reform for some time. Sen. Wyden has been in favor of reducing the corporate tax rate and has worked in bipartisan efforts aimed at simplifying not just the corporate tax code, but also the entire us tax code so that all individuals can benefit from a simpler and more efficient system.  The President even supported lowering the corporate tax rate in 2012.

House Ways and Means Committee Chairman Dave Camp (R-Mich.) will also be interested in hearing about a move towards tax reform in tonight’s State of the Union address. Rep. Camp has been working with Sen. Baucus on tax reform and last year he and Sen. Baucus toured several cities across America to hear from folks who are most impacted by the bloated and complicated tax code.  Rep. Camp started off 2014 in the right direction releasing a video, titled “Making Today’s Tax Code Simpler and Fairer”, which highlights just how complicated the tax code really is and why comprehensive reform would be beneficial for all taxpayers. Rep. Camp will move forward on tax reform within his chamber and he plans to speak to his caucus later this week about his own plans for comprehensive reform, according to Bernie Becker of The Hill:

House Ways and Means Committee Chairman Dave Camp (R-Mich.) will seek to revive flagging hopes for tax reform at a GOP conference retreat later this month. Camp and other GOP tax writers are seeking to tap into the desire by some conservatives to press ahead with Republican policy priorities this year, instead of the more play-it-safe approach favored by party leaders.

The efforts towards tax reform are not limited to a Washington audience and there are millions of Americans who will be watching the speech tonight. That audience will include state officials from all over the country and they have ideas of their own on how to tackle the issue of comprehensive tax reform. Recently, Indiana sought to relieve some of the burden on businesses in their state by taking aim at the corporate tax code:

A proposal that would cut Indiana’s corporate income tax rate by a quarter and eliminate an equipment tax on small businesses cleared its first hurdle Tuesday in the state Senate. The Senate Tax and Fiscal Policy Committee approved the measure 7-2 after hearing about three hours of testimony. Under Senate Bill 1, corporate income taxes would be reduced from 6.5 percent to 4.9 percent by 2019. That represents a tax cut of $131.8 million for Hoosier businesses. Some of that money — $24.7 million — would be recouped by cutting or eliminating tax credits for things such as research and development and gifts to colleges and universities.

Washington can learn from state legislatures that are acting, instead of just paying lip service. Though ideas and solutions may differ depending on who has the floor, the approach towards making progress on tax reform is the best way forward.

There is a great deal of upside to taking on tax reform and the more policymakers dig-in with efforts to simplify the system, the more the benefits to the taxpayers and the US economy will be realized.  The Taxpayers Protection Alliance (TPA) has been aggressively calling for tax reform in all areas of the code, especially on the corporate rate, urging elected officials that a major overhaul of the tax code is just what the economy needs to put money back into the pockets of taxpayers and businesses so that more jobs can be created and a better climate can be fostered where economic growth is once again encouraged. In a coalition letter sent by TPA and signed by 60 Plus Association, Americans for Job Security, Americans for Tax Reform, Center for Individual Freedom, Citizens Against Government Waste, Competitive Enterprise Institute, Less Government, Let Freedom Ring, National Taxpayers Union, R Street Institute, and Small Business & Entrepreneurship Council we urged action on comprehensive tax reform:

While the need for simplification is clear, any reform to the tax code must also be accompanied by an overall reduction in statutory rates… As America has stood still on reforming our tax code, other nations have aggressively worked to reform their business tax codes resulting in an average rate of just 25 percent among OECD nations – a full 10 percentage points lower than the current U.S. corporate rate.

The State of the Union address is an annual fixture in the political system, but it is also a rare opportunity where all of Washington is gathered and many of the influential policymakers are listening because it can be a barometer for what legislative action may be viable in the coming year. President Obama should use tonight’s address as a launching pad for action on comprehensive tax reform that will encompass ideas to make the system simpler and more efficient, while laying out a bipartisan approach so that lawmakers on both sides who have been working on this issue can come together to make real tax reform a reality this year.