When the Apollo 17 astronauts captured a photograph of the Earth that first showed us what the South Pole actually looks like, it gave people tremendous perspective on this aspect of global geography. That’s what people need sometimes to truly appreciate the scope of something; a very big picture.
We have a similarly big picture in the autumn release of the PricewaterhouseCoopers global tax summary for 2014. It is a 2,306 page colossus of information covering the tax picture in 153 nations from Albania to Zimbabwe and almost everything in between (North Korea and Cuba are notable exceptions).
It doesn’t have to be this way, and it may not be this way much longer, depending on the fate of tax reform in Congress. It is a classic good news / bad news situation. The good news is that many in Congress now realize that the United States is in need of substantive tax reform. Were this accomplished, it would be the first time since 1986 that the US Tax Code underwent a serious overhaul. House Ways and Means Committee Chairman Rep. Dave Camp (R-Mich.) and Senate Finance Committee Chairman Sen. Max Baucus (D-Mont.) have done yeoman's work, pulling together tax reform plans that have the potential to re-boot America’s economy and give industry fresh incentives to increase hiring and expand operations.
The bad news is that Congress is preparing to wrap-up its legislative calendar for 2013, delaying prospects for tax reform at least until next year. Also looming in 2014 is the midterm election cycle, which is certain to throw any number of political monkey wrenches into the process.
Tax reform has a lot of moving parts; it is among the most complex bills to be written, negotiated and voted upon. But two items on which most agree is that the combined corporate tax rate, at approximately 40%, needs to be reduced; and that the United States must follow the approach of every other industrialized nation and move to a territorial tax system which provides relief for U.S. companies doing business abroad.
There are a number of formulas that propose a corporate tax rate of 25 percent, accompanied by reforms to make this reduction revenue neutral. Equitable reforms across industries, coupled with a rate reduction to 25 percent, would bring much needed simplicity and clarity to the tax code.
Transitioning to a territorial system from a worldwide tax scheme would also yield tremendous benefits to our sluggish economy, leading to hundreds of billions of dollars earned overseas by US companies being brought back home. Whether this capital is used to grow jobs, increase production or returned to retirees and retirement account holders through higher corporate dividends, the key is getting that money flowing through the American economy.
It’s a given that various interest groups will use the time between today and the final version of any tax reform bill to jockey on Capitol Hill, pressing for their particular interests and seeking preferences through which their clientele can gain an advantage. This is part of the process and is to be expected. But the best course of action is to keep an eye on the big picture of lower rates and a modern territorial system. We have the benefit of seeing things in a global perspective; now, we need to act on what we see.
Galvin is immediate past chairman of the National Association of Manufacturers’ Tax Committee and retired vice chairman of Emerson.