Tax Reform Takes Center Stage With H.R. 1

For once Washington takes a step in the right direction, but keep your excitement reserved.  Much remains to be seen about just how far House Speaker John Boehner’s efforts to reform our tax code will actually go but credit should be given to Speaker Boehner who took the first step towards making this happen when he announced that “he will push major reform of the tax code by reserving pole position — H.R. 1 — for that massive legislative undertaking.”

Again, don’t get too excited or think the battle is over yet.  The troops haven’t even gotten on the ground yet.  The Hill article reminds us of a very important fact: “Designating tax reform as H.R. 1 far from ensures that it will become law this year, or even that it will make its way through the House.”  While this is certainly true, this reality calls all pro-taxpayer groups to join together and keep Boehner to his promise.  There’s much to undertake when it comes to crafting a good, extensive restructuring of our current, disastrous, burdensome tax code, but the fact is you can’t begin to have a conversation until the subject is at the very least on the table.  And that’s what Speaker Boehner has done.

Now let’s just hope this symbolic gesture moves beyond a sheet of paper and prompts action on a significant under-hauling of our nation’s tax code.  In an attempt to encourage Congressional action on this issue, the Taxpayers Protection Alliance suggests that one area of tax reform that should get particular attention is corporate tax reform.

On April 1, 2012, the United States had the dubious distinction of becoming the country with the highest corporate tax rate.  According to an April 4, 2012 op-ed in Reuters by Elaine Kamarck and James P. Pinkerton, “The U.S. in the dubious position of being number one in anti-competitiveness with a current combined rate of 39.2 percent. . . . combined corporate tax rate, and federal rate at 35 percent, leaves us in a weaker position relative to other leading economies.”

Policy makers in Washington are not the only ones paying attention as Kamarck and Pinkerton point out our competitors are also taking notice, “Over the last 20 years, America’s competitors have lowered their top corporate rates to levels as low as 12.5 percent and 8.5 percent in the cases of Ireland and Switzerland, while the U.S. has not.”  A letter from the Chief Executive Officers of 17 of the largest U.S. companies, members of the RATE Coalition , sent a letter to lawmakers looking for a “reduction of the corporate tax rate as part of any wide-ranging corporate tax reform,” and “Simply put, in order to expand and build upon the job creation achieved under President Obama, the U.S. must enact comprehensive corporate tax reform with a significantly lower corporate tax rate.”

The damage raising taxes on the private sector does is great, and its effects ripple far beyond the companies who receive the initial slap of a higher rate.  When private sector taxes rise, profits decrease and hiring practices and investments also suffer decline.  This is because the money that a company could typically spend on new investments and endeavors is either being handed over to the government or being kept safe in the bank since the company is fearful of what new product or service the government may tax next.

One thing is certain; Congressional leaders have quite a steep hill to climb when it comes to the mountain that tax reform poses.  In addition to the disaster that is our current tax code, Members of Congress are also faced with an electorate that mistakenly subscribes to much of the nonsense this Administration spews when it talks about “raising revenues.”  For example, as Liz Peek writes in Fiscal Times, “By continually seeking higher taxes on high earners, and insinuating that the ‘one percent’ was failing to pay its ‘fair share’ and not playing by the rules, Obama convinced Americans that they were poorer because someone else was richer. President Obama did not worry that he was doing irreparable harm to the achievement ethic that has made the United States so successful. He did not anguish over the message sent to young aspiring entrepreneurs and innovators – that the U.S. might not celebrate success as it has in the past.”

A significantly simplified tax code would help Americans and our economy get back on track.  When tax reform discussions start to (hopefully) heat up on Capitol Hill, it’s important to remember that our tax system should be crafted in a fashion that does not scold or penalize a hardworking individual or his company.