The Foundation of Fair and Effective Tax Reform | Commentary
By Pete Sepp We all know Washington is capable of making a mess of just about anything. Further compounding matters, the politicians who inhabit this town usually don’t admit there is a mess. But every so often, those in power not only confess there is a problem, they even propose something be done to correct it. In this instance, it’s the tax code. Everyone from President Barack Obama to the Senate Majority Leader Mitch McConnell of Kentucky to Speaker John A. Boehner of Ohio concedes our current tax system needs to be cleaned up in a big way.
Last week, the Senate Finance Committee held a hearing titled, “Fairness in Taxation,” the third in a series conducted by the panel as it studies tax reform. Chairman Orrin G. Hatch, R-Utah, has also established several working groups to examine the issue and release findings this spring, perhaps setting the stage for congressional action later in 2015.
The last time Congress made a major attempt to overhaul our tax system was three decades ago, with the Tax Reform Act of 1986. The legislation eliminated a host of deductions, flattened the tax base and lowered tax rates. And significantly, this was accomplished in a bipartisan fashion.
Much has happened since then, leading Americans to wonder whether two parties that are divided on almost every major issue can come together to enact meaningful change. But remarkably, both Democrats and Republicans have indicated there is room to work across party lines, especially on business tax reform.
As lawmakers move forward, the foundation of their effort should be to treat all actors in our economy as equally as possible. Unfortunately, it’s clear that the president and his administration have a different blueprint: one that includes singling out and punishing individual industries, prominent among them the oil and gas sector.
As far as this area of economic activity is concerned, the president and his administration want to have their cake and eat it too. They want to embrace, and take credit for, the benefits that increased oil and gas production have brought this country even as they seek to penalize the very industry that brought about those benefits.
One need only take a look at the president’s recent 2015 annual economic report, which touts, “The U.S. energy revolution has contributed to economic growth, both in terms of economic output as measured by [gross domestic product] and overall employment. It has also contributed to a declining trade deficit as the Nation has recovered from the Great Recession.” The President’s Council of Economic Advisers found that between 2012 and 2014, oil and gas alone contributed more than 0.2 percentage points to real GDP and total employment in the sector increased by 133,000 jobs between 2010 and 2013.
There is a large ripple effect at work in this trend as well. The report notes that employment has grown in companies that provide goods and services to the oil and gas sector, including manufacturing, transportation, and leisure and hospitality.
Yet despite this praise, that same report states the president’s approach to business tax reform would involve reducing “the disparities in tax rates across industry and asset [types].” What “industry” or industries might end up in the crosshairs for this exercise? Look no further than the next sentence in the document, which cites the administration’s fiscal 2016 budget calling for “the elimination of numerous fossil fuel preferences that not only advantage fossil fuel production in general, but also pick winners and losers among fossil fuel technologies.”
Those “preferences,” by the way, are generally deductions and credits available to many industries (not just oil and gas) or have equivalents designed for other business models. In reality, it’s the administration that’s picking the winners and losers with fiscal policy, by putting what amounts to a dimmer switch on one of the brightest lights in this struggling economy.
To its credit, the economic report discusses at length the need for a simpler, less burdensome tax system that fosters competitiveness, efficiency, and growth. Yet, these fine sentiments are hollow alongside unproductive rhetoric that threatens job creators with harsh tax treatment.
So, let’s hope that the president and his allies realize the irony of pursuing tax fairness by means of unfairly targeting the oil and gas sector. While it might score them some political points and sound bites, it doesn’t get the country closer to the best possible outcome: an effective Tax Code that allows all industries to flourish here at home and compete more robustly abroad.
Pete Sepp is president of National Taxpayers Union (ntu.org), a nonpartisan citizen group founded in 1969 to work for lower taxes, limited government, and economic freedom at all levels.
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