The United States Tax Code Is In Need of Serious Spring Cleaning
April 28, 2015
The United States suffers from subpar economic growth and reduced long-term potential for growth. In part, this stems from a corporation income tax that includes a very high rate and worldwide tax, two features that put it at odds with international norms and harm the growth and competitiveness of the United States.
U.S. firms are increasingly at a disadvantage competing for the vast majority of world consumers and international markets as other nations adopt more favorable tax treatment of foreign-source income.
In light of the deficiencies of the U.S. code, tax reform should meet three key criteria:
- A permanently lower statutory business tax rate that returns the U.S. to international norms.
- A permanent move toward a territorial-style treatment of overseas earnings that would reduce or eliminate taxes on repatriated earnings.
- A permanent broadening of the tax base to reduce economic distortions in the context of rate-reducing, overall tax reform.
The current administration has proposed a one-time levy on overseas earnings to pay for highway spending, while other policymakers have a proposed stand-alone tax holiday as a financing mechanism for the same spending. These proposals suffer from a number of flaws, the most significant of which is that they are proposed separately and distinctly from a pro-growth reform of the broken U.S. tax code.
Addressing the broken code offers long-term economic growth, whereas a temporary policy offers little economic benefit in the current climate, and fails as an effective financing mechanism for the unsound Highway Trust Fund.
Source: Gordon Gray, "The Need For Tax Reform: Evaluating Recent Proposals," American Action Forum, April 27, 2015.
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