Time to Get to Work on Real Tax Reform

David Williams

November 10, 2016

This article appeared in Morning Consult on October 31, 2016

The 2016 presidential election will certainly go down in the books as one of the most contentious campaigns in recent history. It will also be remembered as one in which both of the candidates failed to offer much detail to Americans on policy, including how to fix a tax code that is woefully out of date. Thirty years have passed have passed since the Tax Reform Act of 1986 and it’s time, as the phrase goes, to get down to brass tacks and focus on the details of bringing our tax code into the 21st century. Reforming the tax code is not about just checking some random policy box, it is about making the tax code better for individuals and businesses.

While there is overall agreement amongst both Republicans and Democrats on the need to tackle this monumental task, as always the devil is in the details. The biggest obstacle is always on how to reach the end game of comprehensive tax reform. For Democrats, it’s always the same strategy: Take away alleged “subsidies” the oil and gas industry receive from the government.  That argument might sound enticing, but unfortunately the strategy fails because it’s based on a faulty premise.

A subsidy is a direct payment from the government to a business with the intended goal of propping up said business. Oil and gas companies in the United States receive no such handout. They do, like numerous businesses across multiple sectors, take tax deductions to write off legitimate business expenses.

It is odd that Democrats direct their ire solely towards the energy industry. Especially in light of the fact that since — and even during — the recession, it has been one of the few bright spots in our economy, contributing to economic and job growth. Not to mention the billions in investment they pour back into the nation, as evidenced by the Investment Heroes report compiled annually by the Progressive Policy Institute.

PPI began issuing its annual report in 2012 in order to “highlight those companies that were investing heavily in the United States.” Those long-term domestic investments are in buildings, equipment and software. According to the findings, “The top 25 investment heroes invested nearly $177 billion in the United States in 2015. That’s up from $172 billion in last year’s top 25, a 2.9 percent increase.” The energy production and mining category was the second highest spending sector on PPI’s list with five companies having an estimated combined domestic capital expenditure of $33.8 billion last year.

In order to move forward on tax reform, lawmakers must agree to remove this misleading subsidy roadblock. It only serves to raise punitive taxes on a critical economic engine and to distract from the task at hand. Once that is done, they can truly begin the hard work.

The two most obvious places to start are the complexity of the individual tax code and the high corporate tax rate which stands at more than 39 percent – the highest in the developed world. With the worldwide average hovering around just under 23 percent, American businesses are competing at a huge disadvantage on the global stage. That reverberates here at home as it hinders companies from growing and hiring more people.

It also forces businesses to move to more tax-friendly environments overseas, a maneuver called corporate inversions. And while lawmakers and the Obama administration enjoy denouncing this practice, they offer only piecemeal regulations in response that do little to address the larger problem causing companies to take such action.

The Section 385 regulations recently issued by the Treasury Department are a case in point. Although the intended goal is to stop corporate inversions, they are instead an irresponsible and unprecedented interference into private business activity, burdening large and small businesses — who don’t even intend to invert — with massive compliance costs. But the bottom line is that companies have an obligation to their employees and shareholders to maximize their profits and they will seek the necessary means to fulfill that obligation.

Senate Finance Committee Chairman Orrin Hatch (R-Utah) put it best when he said, “Regulations, rules and unilateral fixes will not change the fact that we live in a global economy, and no regulatory wall can be built high enough to keep businesses in the United States when there are strategic options elsewhere.”

The solution is, and always has been, industry neutral comprehensive tax reform that simplifies the tax code for individuals and lowers the corporate tax rate for our nation’s businesses. Come January, Democrats and Republicans should harness the bipartisan support for reform and turn words into action.

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