NCPA - National Center for Policy Analysis

Increasing America's Competitiveness

February 14, 2012

In assessing the expiration of certain provisions of the tax code at the end of 2011, it becomes important to take a look at the current state of the nation's tax system, especially insofar as it affects the country's businesses, says Jason J. Fichtner, a senior research fellow at the Mercatus Center.

This is particularly crucial because 46 of the 59 provisions that expired relate to the taxation of companies.  This speaks to the complex pervasive nature of current corporate taxes and the need for general principles that will create an adequate corporate tax system:

  • Simplicity -- the tax code should be as transparent as possible so as to increase compliance and decrease the costs of compliance.
  • Equity -- taxes should not favor one company or industry over another, as this often equates to the government arbitrarily picking winners and losers based on political pressure.
  • Efficiency -- businesses should not be taxed more than is necessary to provide adequate revenue for the government, as every increase in tax levels inherently damages market efficiency.
  • Longevity -- because a tax code that varies rapidly over time creates uncertainty, temporary measures should be avoided when possible.

To this end, several reforms of the current U.S. tax code for corporations would emphasize the goals and result in a net benefit for American businesses, workers and consumers.

  • Lower tax rates for businesses would increase their ability to employ Americans who are out of work and would augment their competitiveness in the global marketplace.
  • The tax base should be broadened by eliminating loopholes, which will probably increase revenues and will increase transparency.
  • No form of income should be taxed twice, as this cuts down on efficiency and multiplies the damage done by the government's intervention.

These reforms and the principles behind them are necessitated by America's falling standing among developed nations.  U.S. firms compete at a disadvantage to foreign competitors and the pervasive tax code incentivizes ends that are not optimal or efficient.  A reform of the tax code, especially in how it affects businesses, would reverse these trends and encourage economic growth.

Source: Jason J. Fichtner, "Increasing America's Competitiveness by Lowering the Corporate Tax Rate and Simplifying the Tax Code," Mercatus Center, January 31, 2012.


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