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Tax Reform Must Start Somewhere | Commentary

By Brandon Arnold Will members of Congress finally overhaul the tax code? Or will they miss yet another opportunity to spur economic growth and reduce the overwhelming compliance burden facing taxpayers?  

A public opinion poll conducted in June showed that 77 percent of Americans believe tax reform should be a priority for President Barack Obama and Congress. Key leaders in Congress, like Senate Finance Chairman Orrin G. Hatch, R-Utah, and House Ways & Means Chairman Paul D. Ryan, R-Wis., are strong proponents of fundamental tax reform. Even Obama and top-ranking officials in his administration have indicated support for reform. Despite all of this, many insiders in Washington are pessimistic about the prospects for an overhaul.  

Nonetheless, there might be reason for hope. In early July, the Senate Finance Committee released a series of working group reports on different aspects of fixing the tax system.  

While most of the reports showed little agreement outside of the basic conclusion that tax reform is both necessary and challenging to get done, the Business Income Tax Working Group’s findings offered a possible jumping off point for Congress to begin the cumbersome process of updating our federal tax code. The report notes, “If there is one element of business tax reform that appears to have very broad support, it is the need for a substantially lower corporate tax rate.”  

As the “Voice of America’s Taxpayers,” National Taxpayers Union strongly supports broad, comprehensive tax reform that directly benefits all taxpayers. But we also believe that it is imperative to make progress – even if imperfect – on meaningful legislation. If that means starting with the corporate side of the law, then Congress should do so without delay.  

There is little question that corporate taxes need to be restructured from top-to-bottom. In an increasingly globalized environment, our companies of all sizes pay the highest statutory corporate tax rate among developed nations. Even countries typically regarded as high-tax jurisdictions such as the United Kingdom, Spain, France, Sweden and Italy all have lower corporate tax rates than we do.  

And it’s not just the high rate that is stymieing economic growth. The current U.S. tax code is an overly complex monstrosity that forces businesses to budget for expensive tax preparation services. For the countless small businesses that survive with very small profit margins, this added cost is extremely hard to shoulder. Especially when you consider a study by the National Association of Manufacturers that found that companies with fewer than 50 employees spend $1,518 per worker on tax compliance annually.  

What does all this mean for U.S. businesses, workers, and the economy? Nothing good.  

Between our high corporate rate and complex tax code, U.S. firms enter any international market at a distinct competitive disadvantage. Because our companies have so much overhead from tax rates and compliance costs — not to mention all the other red tape — our products often cost more than those made in other countries. Naturally, consumers gravitate to lower prices, so more and more U.S. products and businesses are missing out on sales.  

Some on Capitol Hill are claiming it is impossible to get corporate tax reform passed before a new President is elected. This is a false assumption: in recent months GOP leaders and President Obama have proven they can cooperate when the stakes are sufficiently high, having come together to successfully pass entitlement reform and expand trade. And few, if any, initiatives have higher stakes for a more robust economic recovery here and abroad than tax reform.  

It’s been 30 years since Congress last did a major overhaul of the tax code. It’s well past time to do so again. Ideally, lawmakers would work on comprehensive reform for individual and businesses. Short of this, they should at least move on corporate reform, and quickly. Every day we stand still is not just a lost opportunity to move forward, it’s a sure sign of moving backward.  

Brandon Arnold serves as the executive vice president of the National Taxpayers Union and the National Taxpayers Union Foundation.  

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