One of the few things that politicians from both parties can agree on these days is that the U.S. tax code is an overly complicated set of rules that allow for less-than-ideal behavior among taxpayers. That is about where the meeting of the minds ends: Who is behaving poorly, how, and to what end let alone how to correct each of these missteps is up for vigorous debate. As such, any wholesale reform of the system will likely remain a political holy grail for the foreseeable future. In the meantime, President Obamas preliminary attempt at beginning a focused discussion of a narrow slice of the tax code is a good start.
The number of qualifiers used to describe the reforms Obama has proposed reflects the complexities that will likely challenge the effort and that loom for any larger attempt at changing the tax code. Nevertheless, beginning with a look at how to make more effective the rules regarding business taxes makes sense. The United States corporate tax rate, at 39 percent, is among the highest among its major trading partners and as such provides an incentive for U.S.-based corporations to look for other countries to host their earnings in a more tax-friendly manner. Obamas proposal would lower the rate to 28 percent while simultaneously closing some of the loopholes and ending the subsidies that allow too many corporations to avoid paying that rate or any, for that matter. It would also help balance the scales for all businesses, by not unfairly favoring such industries as oil and gas, insurance, or financial services.
This effort would focus on returning to the U.S. Treasury tax dollars that are lost due to provisions in the tax code that effectively encourage U.S. companies to locate their businesses or at least their profits in other countries. In so doing, Obama proposes to increase the net revenues gathered from businesses. It is also a welcome attempt at simplifying a convoluted and arcane system that undercuts the notion of collecting revenues to fund the public goods that all societies need to function properly.
In keeping with his campaign mantra of returning manufacturing jobs to the United States an arguably nostalgic and potentially unrealistic answer to the economic troubles that the country faces Obama proposes deductions for companies whose manufacturing operations are in the United States. That is fine, but will hardly make or break the Treasury and should be acknowledged as a plank in the campaign platform rather than a meaningful prong in the tax reform agenda. However, the proposal would provide incentives for companies that invest in clean energy innovation an effort that can provide benefits on a number of levels from spurring job creation to helping address global climate change and many areas in between.
The reform proposal would also simplify the mechanics of filing taxes for small businesses something that anyone who has wrestled with tax returns can appreciate, and is a step in the right direction toward making the tax system more clear, fair and productive.
Individually and together, the reforms Obama proposes do not fully address the problems and inequities in the U.S. tax code, but they represent a detailed, reasonable and actionable first step in doing so. Whether reasonable or unreasonable people on both sides of the political spectrum can see fit to enact these changes without getting mired in partisanship will be the reforms first hurdle. Clearing that, there may be hope for diving into the effort more deeply.
