‘The Sound of Silence’ on tax reform is ending soon — hopefully
Whoever thought tax reform could be so difficult? Perhaps, Congress has been listening to Simon & Garfunkel:
“Reforming taxes our old friend, it’s good to see you back again.
In the naked light we saw, 300 million people, maybe more.
People talking without speaking. People hearing without listening.
No one dare disturb the sound of silence.”
In America, tax reform has been silent for 30 years. The last major tax overhaul was in 1986 (under President Reagan), but things have changed a bit since then.
Most Americans continue to be frustrated by the difficulty, favoritism and sheer size of our tax code. Many believe our system of taxation is inherently unfair. Others accuse it of making our nation’s economy less competitive. There is no doubt that high rates invite companies (and individuals) to contort their behavior to lower their tax burdens. Some companies even invert the location of their headquarters, just to shelter earnings in favorable foreign tax locations.
Having tax change in mind, and with dogged determination, House Speaker Paul Ryan (R-Wis.) began his quest to reform America’s outdated and cumbersome tax policies. With control of the federal government, Republicans believe it is their mission (actually, their destiny) to spearhead tax reform. Proceeding with evangelical zeal, they truly believe that their tax-time has come.
The background for all this started more than a year ago, when the party issued a new tax manifesto called, “A Better Way.” This action was characterized as a plan for the future and a way to stimulate discussion. The Republican blueprint has three worthy goals: They would like to simplify the tax code, deliver opportunity and transform the IRS into an agency focused on customer service.
America has now reviewed this “blueprint” and people are generally in favor of tax reform. However, with our large national debt, there were concerns for revenue generators. No one will argue against a tax cut, but some worried that our deficit would skyrocket without an additional revenue stream, and the long-term results for our economy could potentially be disastrous.
Clearly, in terms of congressional procedure, reducing the cost of ObamaCare had to be on the table before tax reform could even be discussed.
Much of the early tax reform dialogue was derailed by the contentious issue of a potential Border Adjustment Tax (BAT), which spewed retail venom from companies facing potential extinction. Essentially, the BAT idea was to tax imports and give a free ride to exports. However, most people viewed BAT as being nothing but an additional consumer tax, which would have forced retailers to raise prices and ultimately do more harm than good.
With the BAT tax now completely off the table, America’s lonely eyes have turned to other ideas, including a Foreign Minimum Tax (FMT), which would tax the profits of American companies that operate outside our borders (less any foreign taxes paid). While this idea was dead a few years ago and wildly unpopular in the past, FMT is now viewed as a partial cure for the deficit problem.
In addition, there is also a strong school of thought indicating that there might not be a real need to have a pay-for, presuming that the lower tax rates would stimulate the economy, and the concern for additional taxation would simply disappear.
Clearly, and in a bipartisan manner, tax reform is a worthy endeavor. It’s very important to note that America has the third-highest marginal corporate tax rate in the entire world. We reach as high as 38.92 percent (if we include state tax), while the worldwide average is 22.5 percent. In fact, during the last 10 years, worldwide rates have declined, while America has drifted further and further from the norm.
Tax reform is very likely to happen in this calendar year. For sure, Congress does see low-hanging fruit and an opportunity for a big win on a very important issue.
Whatever happens during the tax debate and whatever the outcome, Americans do agree that something needs to be done, and that we can no longer continue to listen to the sound of silence.
Rick Helfenbein is president and CEO of the American Apparel & Footwear Association and is a strong advocate for a robust U.S. trade agenda and for “Made in USA.” He lectures frequently about politics and international trade. Follow him on Twitter @rhelfen.
The views expressed by contributors are their own and not the views of The Hill.