Tax Reform Will Bring a Brighter Economic Future
With one presidential debate behind us and another this weekend, one has to ask whether either candidate is ready to discuss important policy issues facing the country. The first debate certainly lived up to much-hyped expectations. Between all the back and forth, however, both candidates managed to eke out some general ideas for fixing the nation’s economy. Trump highlighted his tax proposals designed to keep companies from leaving the United States and spur job growth, while Clinton vowed to make the wealthy pay their fair share and close corporate tax loopholes to benefit the middle class.
While the time constraints of the debate may have limited their ability to delve too far into policy specifics, we have some idea of what a President Trump or a President Clinton might do once in the White House.
Donald Trump unveiled additional details of his tax plan during a recent speech he gave in New York City focused squarely on U.S. economy policies. Among the notable proposals is the consolidation of the seven individual income tax brackets down to three, reducing the top rate to 33 percent from 39.6 percent. On the corporate side, the tax rate would drop from 35 percent down to 15. He would also eliminate the carried interest loophole as well as the estate tax.
These proposals align Trump closely with several members of the House GOP’s proposal “A Better Way to Tax Reform,” released in June by House Speaker Paul Ryan (R-WI) and House Ways and Means Committee Chairman Kevin Brady (R-TX). Their plan would also consolidate the personal income tax brackets to three with a 33 percent top income rate, although it would only lower the corporate tax rate to 20 percent.
Meanwhile, in her major policy speech on the economy earlier this summer, Hillary Clinton also advocated individual tax reform, but made no mention of whether she intends to lower the corporate tax rate, instead only proposing an “exit tax” for companies leaving the country and vowing to stop corporate inversions.
The latest jobs numbers — 156,000 added last month, lower than the 170,000 expected — are, to say the least, underwhelming, allowing both candidates to present reforms to the current system. And the nation’s gross domestic product (GDP) grew at a paltry seasonally adjusted annual rate of only 1.1 percent in the second quarter, the Commerce Department announced in August.
According to USA Today, “The economy has averaged about 1 percent growth the past three quarters, well below the roughly 2.2 percent yearly average in the seven-year-old recovery.”
Comprehensive tax reform would rev up our economy. The United States currently has one of the highest combined corporate tax rates among developed countries, placing our businesses at a distinct disadvantage in the global arena and limiting their investments here at home. In a rare instance of agreement between the parties in Washington, both Democrats and Republicans have advocated for reform of our burdensome tax code. But, as usual, the devil is in the details. In this case, the question is how to actually achieve tax reform.
Unfortunately, rhetoric too often clouds sound economic policy when it comes to reforming our tax code. And it’s typically aimed at one industry: energy, specifically, the misguided notion that oil and gas companies receive subsidies. This misconception was perpetuated by the Council on Foreign Relations in a recently released report. For those unfamiliar, a subsidy is a direct payment from the government intended to prop up an industry.
The claim that the oil and gas industry is subsidized may make a good soundbite, but that doesn’t make it true. Like multiple other industries, the energy sector takes tax deductions for legitimate business expenses — hardly a handout from the government. Despite this distinction, the battle cry for many in the tax reform debate is to mischaracterize these deductions as subsidies and push for their elimination — but only for this particular sector of our economy.
The energy industry, despite recent setbacks due to low oil prices, continues to support millions of jobs and contribute to the nation’s bottom line. And as a result of the oil and gas sector’s investment and innovation, the United States is in the midst of an energy renaissance, becoming the world’s leader in production. To target them by punitively taking away tax deductions would be economically counterproductive.
In 2017, Congress and our next President should work towards a tax code that is not only simplified, but uniform, treating all industries fairly rather than picking winners and losers. The result will be a brighter economic future for the American people.