Competitive. That was the word that kept coming up at a Forum on Taxation in Washington DC last week. Sponsored by CQ Roll Call, Altria (a tobacco company), and UPS, the talk was mostly about corporate taxes. The message from the corporate sponsors was that U.S. corporations must be competitive in the global economy, and this requires a lower corporate tax rate. We heard the refrain that the U.S. has the highest corporate tax rate -- currently 35% -- and that means U.S. corporations can’t be competitive.
But later we heard other perspectives from a panel of economists. One of them posed the question: “Do we just want to make U.S. corporations competitive overseas, or do we want the U.S. economy to be competitive as a whole?” If we’re worried about the whole U.S. economy, he said, investments in U.S. workers – education, skills, working conditions -- are more important than tax rates.
The economists also pointed out that few corporations actually pay 35% in taxes because there are so many corporate tax breaks and subsidies (some call these loopholes) in the U.S. tax code.
There seems to be a consensus to reduce the top corporate tax rate, but are corporations willing to give up the loopholes in exchange for lower rates? (Answer: probably not)
When the talk turned to individual tax rates, similar questions came up. Are people willing to give up tax deductions for home mortgages, charitable contributions, and state/local taxes in exchange for lower tax rates?
There was agreement that you can’t address the tax system without addressing the bigger issue of the budget deficit. What we pay in taxes should roughly equal what we expect our government to spend. But “we” the American people, are not of one mind on that.
Two members of Congress, Rep. Charles Boustany (R-LA) and Sen. Ben Cardin (D-MD) spoke about the challenges of tax reform. They both mentioned that the last time we had major tax reform, in 1986, it was a 3 or 4 year process to get there, and the “simplified” tax code didn’t last long before exceptions and “temporary” provisions started again. They both said we need to start by stating our goals for tax reform.
Rep. Boustany’s goal for tax reform is that it promote :
- Individual liberty
- Global competitiveness
Sen. Cardin said we need
- More incentives for saving
So we had bi-partisan agreement on “fairness”. The challenge, of course, is getting all members of Congress to agree on what is fair.
I came away with a general impression that tax reform is going to be REALLY hard.