True Tax Reform Must Be a Full Overhaul of the Code | Commentary

Posted January 19, 2015 at 2:36pm

The 114th Congress is just days old, and the acrimony between the parties seems to be as intense as ever, with one major exception — tax reform. This is one of just a few policy areas capable of attracting support from both parties on both ends of Pennsylvania. Expect to hear about it in President Barack Obama’s State of the Union address and expect the issue to be a hot topic at each party’s upcoming congressional retreat. After this era of globalized economies, policymakers have precious few tools for growing the economy and boosting wages for American workers. But tax reform is one of them.

Comprehensive tax reform is an attainable goal in this Congress. In fact, recent actions taken by the president and congressional leaders can all be seen as vital steps in the direction of propelling economic growth.

However, as the issue moves forward, it’s critical for policymakers to remain focused on addressing the true problems with the code, avoiding short-term fixes that will further complicate the tax code and make tax reform more difficult to accomplish.

The U.S. holds the dubious distinction of having the highest corporate tax rate in the world, a staggering 39.1 percent. Should we fail to act on this glaring economic disadvantage, the U.S. will continue to be outpaced by international competitors, and we will see more and more companies finding alternatives outside the U.S. to avoid paying our punishingly-high business tax rates.

Moreover, pro-growth tax reform will put a stop to tax inversions — that is, tax maneuvers whereby a foreign-based firm buys out a percentage of a U.S. company’s holdings so the newly formed company retains a foreign ownership and is therefore beyond the reach of the U.S. tax net. These inversions have increased exponentially in recent years, as our tax code has grown less competitive — especially with those countries, including Canada, that have cut their corporate tax rate. Inversions are a symptom of an underlying illness that has plagued our economy for years; this trend signals an alarm for our future business environment. Once again, the only viable, long-term solution is a full overhaul of our tax code.

In recent weeks, some lawmakers have proposed using revenue generated through repatriation and other tax maneuvers for reasons other than tax reform. This would do more harm than good. These ideas should not be confused with tax reform, as they do nothing to simplify our tax code or bring tax rates down to a globally competitive rate — actions that would benefit all businesses that create jobs and are looking for ways to invest and grow. Doing such would serve only as a distraction that will make accomplishing tax reform harder to achieve in the long run.

Our broken tax system needs a complete overhaul, not quick fixes or one-time tax holidays. To this end, in order to make meaningful tax reform a reality, all available revenue from the elimination of tax expenditures and other changes in the code should be used expressly for the purposes of comprehensive tax reform.

Whittling down our dizzyingly complex and outdated tax code down to commonsense policy will boost economic growth, job creation and wages. This requires an overhaul, not a facelift. We remain optimistic that this Congress and the administration will seize the moment and finally achieve tax reform. Americans have been waiting for this moment for nearly 30 years. The time is now for real tax reform.

Eliane Kamarck is a former White House adviser to President Bill Clinton and Vice President Al Gore. James P. Pinkerton is a former White House domestic policy adviser to Presidents Ronald Reagan and George Bush. They are co-chairmen of the Reforming America’s Taxes Equitably Coalition.