12 steps to a simpler, pro-growth tax code

While the rest of the industrialized world works to reform its tax system, the U. S. tax code continues to become less competitive. If the U. S. is to regain its standing and return to robust economic growth, it will need to first acknowledge the areas of the tax code that are the least competitive and most problematic in terms of complexity.

All together, these reforms would simplify the tax code, boost investment, and make the U. S. more competitive.

The 12 steps include the following: Eliminate corporate welfare in the tax code: The tax code is littered with numerous corporate welfare programs which favor certain industries over others and cost roughly $38 billion per year, in terms of lost income tax revenue. This does not count the cost of complexity and compliance, which favors businesses with large tax departments.

Nor does it count the considerable money and resources spent lobbying for these subsidies, which largely benefits Washington, D.C. at the expense of the rest of the economy.

Lower tax rates on pass-through business forms and other high-income filers: More than half of all business income in the U. S. is filed by pass-through businesses under the individual income tax code, not the corporate code.

No other developed country has such a large share of businesses and business income subject to such high individual tax rates. This reduces the incentive for these businesses to invest in the U.S.

Move to a territorial tax system: The U.S. is one of only six developed countries that does not exempt foreign income of corporations from domestic taxation; the U.S. taxes this income at the highest rate in the developed world, putting U.S. businesses operating abroad at a distinct disadvantage, since companies based in other countries only pay tax where the profits are earned, while U.S. companies must also pay an additional tax if they bring their profits home.

Cut the federal corporate tax rate: The combined U.S. statutory corporate tax rate is the highest in the developed world at an uncompetitive 39. 1 percent. The average corporate tax rate among developed countries is now 25 percent.

Eliminate "Obamacare" taxes: There are more than twenty separate taxes in the ACA - all of which are poorly structured and difficult to comply with which increase the federal tax burden by more than $1 trillion over ten years. The biggest burden is the 3.8 percent tax on saving and investment, which will do nothing for healthcare but will certainly harm economic growth.

The ACA has become a vehicle for taxing particular industries, favoring others, while hurting incentives to save and invest.

The study also outlines cases for the following steps: * Improve capital allowances * Reduce shareholder taxes * Eliminate estate taxes * Eliminate the Alternative Minimum Tax * Eliminate refundable tax credits * Eliminate PEP and Pease * Maintain or improve other provisions that protect savings and investment Fiscal Fact No. 400,

William McBride is the chief economist for the Tax Foundation. "Twelve Steps toward a Simpler, Pro-growth Tax Code" is available online. The Tax Foundation is a nonpartisan research organization that has monitored fiscal policy at the federal, state, and local levels since 1937, and is guided by the principles of neutrality, simplicity, transparency, and stability.


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