Our federal tax code is outdated and holding America back. Those who want an America-first tax system — one that helps our country win in the global competition for business and jobs — should be delighted with the framework for tax reform unveiled this week by President Trump and other Republican leaders.
For starters, it moderates America’s unusually high corporate income tax rate — one of the biggest impediments to job creation and wage growth. At almost 40 percent, the current top corporate rate is the highest in the developed world.
The proposed framework will drive that rate down to 20 percent. This is good news for workers because most empirical studies estimate that workers bear between 75 percent and 100 percent of the corporate tax burden. In addition to putting money in workers’ pockets, lower corporate taxes will boost business investment in the U.S. — be it to upgrade worker skills, buy more efficient equipment or expand facilities — fueling business expansion and job creation.
Equally beneficial is the proposal to simplify the tax treatment of business purchases of big-ticket items like machinery and larger facilities. These investments increase production and improve productivity, leading to more jobs, higher pay, and more affordable goods and services.
The reform framework calls for letting businesses deduct the full cost of these purchases in the year in which they are made — rather than allow only incremental deductions spread out over a period of years and sometimes even decades.
The “full expensing” proposed this week would spark productivity-boosting investments that could permanently increase the economy by 5 percent or more.
The only flaw in this provision is its timidity. The plans calls for only five years of “full expensing.” Making it permanent would be even better.
The new proposal would allow American businesses to bring profits earned — and taxed — overseas back to the U.S. without having to pay additional taxes on them. Our infamous double-taxation of overseas earnings has led prominent firms, such as Burger King and Anheuser-Busch, to move their headquarters overseas. It’s time to bring those businesses back to the U.S.
Owners whose business income is taxed through the individual (rather than corporate) tax code would also get relief under the plan. Unlike the Kansas’ recent experiment (which lowered the state rate to zero), the federal framework would split the difference, lowering the current 39.6 percent rate to 25 percent.
Taken together, these business tax reforms will unleash a swell of economic growth, raising wages and creating new jobs for workers across the country.
The framework also lightens the personal tax load borne by families and individuals. It doubles the standard deduction for individuals and dramatically streamlines and lowers existing tax brackets. The seven current brackets (with a low rate of 10 percent and a high of 39.6 percent) will be collapsed to only three: 12 percent, 25 percent and 35 percent. People now paying at the 10 percent rate will pay nothing.
The time for tax reform is now. The current U.S. tax code impedes economic growth. Reforms that get the economy growing at normal rates again will help struggling American families and ultimately bring in more tax revenue than before.
Lowering the corporate income tax rate, expensing and other reforms will reverse the tide of businesses leaving the U.S., increase domestic investment and raise wages. The current system of taxation is in need of a serious update — the GOP framework is just the reform the American people need.
This piece originally appeared in Topeka Capital Journal