More Regressive than Progressive: Policymakers Stuck in the Past on Tax Policy

Bret Wincup photo

At a time where we need bipartisan leadership that has a clear understanding of our country’s economic challenges, it is disheartening to see proposals that would create even more obstacles to economic recovery. Such was our feeling when we read the Congressional Progressive Caucus (CPC) framework for tax reform. The framework contains outdated, discredited ideas, and policymakers would be wise to look elsewhere for serious tax reform solutions.

Despite the fact that there is near unanimous agreement on the need to lower the corporate tax rate, the framework appears intent on keeping the corporate tax rate the highest in the world, stating that we should not “turn around and shovel this revenue out the door through lower marginal rates.” This perspective goes against the views of President Obama, many Democrats and Republicans in Congress, and numerous economists and thought leaders in academia – all of whom believe that lowering the corporate tax rate is essential to our nation’s ability to be a prosperous, job-generating economy. Today, the U.S. corporate rate is nearly ten percentage points higher than the average of our major global competitors.  If we were to maintain the status quo, as the CPC proposes, we would be voluntarily handing jobs and investment opportunities to our foreign competitors, and that also means lost federal tax revenue. However, if we were to have a corporate rate equal to the current average among our major global competitors – 25 percent -- we would experience renewed economic investment and growth. Some studies show that reducing the corporate tax rate to 25 percent would create an average of 581,000 jobs in the U.S. each year for the rest of the decade, and improve the nation’s overall standard of living. There is no better solution to our current fiscal challenges than a revitalized U.S. economy, and the CPC should reconsider its current view that keeping the corporate tax rate the world’s highest is good for the country.

The CPC framework also misses the mark when it comes to the type of tax system we have. The document attacks the notion of switching our international tax system from a global to a market-based, territorial tax system by claiming, “Such a system would increase the incentives and opportunities for multinationals to shift profits and investment offshore.” It’s a great talking point, but the facts make it fiction.  Today, the U.S. is one of only a handful of countries that has not moved to a market-based, territorial tax system – a system designed to help their domestic companies compete globally and incentivize those companies to invest more of their global revenue in their domestic operations.  Our current system and high tax rate is already creating the very problems the CPC fears.  Today, thanks to today’s system, a U.S.-based multinational business is likely more financially responsible and likely will get more financial return if it invests the revenue from its European operations in expansion in Europe rather than in the United States.  That current system has to change.  Almost every developed country that seeks to compete in the global marketplace has changed its tax code to be more internationally competitive by adopting the market-based, territorial system.  Why?  They want their home-based companies to invest more of their global success at home.  We should strive for the same goal. The CPC, on the other hand, appears to be comfortable sticking with the outdated 1986 tax code and its worldwide tax system, which is already placing our companies at a major disadvantage vis-à-vis foreign companies.

There is no doubt that tax reform is needed to boost our fragile economic recovery, but such a boost will only occur if we do reform the right way.  We hope the CPC will reconsider their recommendations, and review some of the emerging bipartisan approaches on tax reform.  We are at a clear defining moment in our nation’s history – a moment when we desperately need the country and economy to be moving forward.

 

 

 

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