By James P. Pinkerton and Elaine Kamarck - 04/16/14 08:00 AM EDT
As the country marks Tax Day this week, many of us are scrambling to understand the bizarrely complicated aspects of America’s tax code and file our returns on time, praying they are correct. It may come as a surprise, but the same complexity also applies to businesses. America’s corporate tax code is convoluted and filled with tax exemptions. What’s more, the U.S. corporate tax rate of 35 percent is the highest in the world and American families are hurting because of our overly complicated and unfair system. As a direct result of our inaction on tax reform and our world-leading rate, wages will be about 1 – 2 percent lower in the future. All in all, the U.S. tax code is hardly one to be envied or emulated.
America’s tax codes, both individual and business, are in need of reform that results in a simpler, fairer tax code. The United States has not updated its code since 1986 – almost 30 years ago. Since then, the code has become riddled with an underbrush of tax exemptions that have expanded the code to more than 3.8 millions words. The result? A tax system that is all but indecipherable to anyone but a tax attorney.
It is time for the United States to reclaim our competitive edge and reform our tax code to eliminate unnecessary tax exemptions, broaden the base and lower our world-leading corporate rate. A simpler, more competitive system will encourage economic growth, job creation and make things fairer for families. In fact, a 25 percent corporate tax rate is expected to create 500,000 jobs and expand average household income by $2,484 per year.
We can’t afford to wait any longer before undertaking fundamental reform. U.S. jobs, headquarters and companies are fleeing to nations with more hospitable corporate tax rates and the consequences are frightening. A recent Ernst & Young study found that due to reductions in the corporate income tax rate enacted abroad over the past several decades and as a direct result of our high corporate rate, U.S. GDP in 2013 was estimated to be reduced by 1.2 to 2.0 percent. The same study showed that over the long term, U.S. wages will be depressed by 1.2 percent. We cannot afford to continue to burden our economy with our outdated and overcomplicated code.
A simpler, fairer code is something the American people would welcome. In recent days companies have been in the news for tax strategies that allow them to pay less than the U.S. statutory rate. The current tax system can be gamed by firms and individuals with enough resources, which is part of why we need comprehensive tax reform that eliminates specialized exemptions and levels the playing field. Reform that includes cutting such loopholes is supported by 73 percent of voters, while 68 percent of voters believe that eliminating loopholes will be very or somewhat effective in stimulating the economy and growing jobs.
Our elected officials are starting to take notice. Leaders in both parties, including President Obama and Speaker Boehner, have called for reform that shares the goals of simplifying the system and helping businesses compete. This is not a partisan issue, but rather one that leads to economic growth and job creation, the highest priorities for both Democrats and Republicans. We need to turn this support into action.
Almost three decades have passed since our code was last reformed and every April 15 that passes increases the urgency with which the nation must address our tax system. We have wasted enough time. Now is the opportunity for our leaders to come together and put the country’s economy on a sustainable and prosperous path.
Pinkerton and Kamarck are the co-chairs of the RATE Coalition.