Every member of Congress plus President Obama is steadfast in favor of comprehensive tax reform. Everyone wants reform, but for years nothing has been done. The problem is that Democrats and Republicans can’t agree on what should be included in “comprehensive.”
Now the waters of reform have been further muddied by the introduction of the words “tax inversion” to the public. Taxes paid by corporations are a part of reform, in addition to rules for individuals. And taxes paid by corporations are a big deal, because taxes affect competitiveness in world markets, which further affects corporations’ hiring and wage decisions.
Over the last several years, other nations have gradually reduced their corporate tax rates in attempts to lure businesses (and jobs) to their shores. Today the United States finds itself with the highest corporate tax rate in the world, a fact well known to policymakers in Washington.
This fact also hasn’t been lost on the managements of corporations. And through a process called inversion, they can merge with businesses headquartered outside the United States and pay some taxes at significantly lower rates than ordinarily would be the case.
This has outraged Democrats and the president, and Republicans aren’t happy about it, either. The president is lambasting corporations…continuing a general theme that has been consistent during his two terms in office.
It is not yet clear how the public views this, which isn’t surprising. Most taxpayers try to minimize their own taxes by taking advantage of any provisions of the tax code that might favor them. They understand the rules of the game: don’t break the law, but don’t pay more than required.
The president and Democrats want to try solving the inversion problem with more laws, more regulations, and threats of retribution. Republicans counter that the most effective way to solve the problem is to simply lower the corporate tax rate. The result is another Washington impasse.
Our own view is that corporate tax rates in the United States should be lowered so that we are more competitive in the world economy. We need to do all we can to make it easier for businesses to expand and hire. To offset fears of lower tax revenue, Republicans and Democrats should also agree on which corporate tax loopholes make the least sense, and eliminate them.
This is a fairly simple solution. Washington loves to make things complex, however. That way, some politicians can continue to bloviate about tax reform, rather than enact it.
— The Grand Island Independent (Nebraska)