A Publication of WTVP

When we think of the ‘80s, we think of Back to the Future, electro-pop music and amusing fashion trends. For some of us, the ‘80s do not feel like that long ago—but the truth is that mix tapes, computers without the Internet and VCRs are all in the past. Many things have improved since the 1980s, but, sadly, our tax code is not one of them.

The last time the United States fully overhauled its tax system was in 1986. Since then, the world and our economy have transformed. Businesses, both large and small, have been on the cutting edge of innovation, reinventing themselves, their products and their business models to stay competitive.

Unfortunately, one of the biggest impediments to economic growth and a thriving private sector is an outdated, clunky tax system that forces businesses to make difficult decisions to remain globally competitive.

American corporations have come under the microscope recently, but let’s consider their outlook. America now has the single highest corporate tax rate in the developed world. The U.S. combined corporate tax rate is 39.1 percent—significantly higher than the “high-tax” countries we compete with. Canada’s rate is 26.1 percent. Denmark’s is 25 percent. The United Kingdom sits at 20 percent. Many countries have rates below 20 percent, such as Ireland, at 12.5 percent. These countries are planning on reducing their corporate tax rates pretty aggressively over the next five years, which will widen the gap even more.

Even more destructive is the U.S. practice of taxing domestically-headquartered corporations on all the global income they earn, regardless of where it is earned—even income made in other countries by subsidiaries. This means that simply moving headquarters to a different country could save corporations billions in taxes. Known as a “worldwide tax system,” this framework dates back to 1960, and most developed countries have done away with it entirely. Not America.

Smaller businesses don’t have it much better. The top federal rate on unincorporated businesses—such as partnerships, S corporations and sole proprietorships—is high at 44.6 percent. To our north, the Canadians are taxing their small businesses at just 15 percent.

Just the act of complying with tax laws alone places a costly burden on businesses, preventing their growth and the creation of jobs. Businesses in the U.S. filed more than 10 million tax returns in 2012. Assuming the IRS’ estimated $420 filing cost holds true, over $4.4 billion was spent just to comply with the law and file income taxes. If we were to calculate the cost of the fees and hours businesses spend complying with labor tax laws, maintaining the same $420 IRS estimate, it amounts to an additional $12.6 billion in compliance costs alone.

Our current tax code is outdated, complex and burdensome. Instead of a tax code that all of us can live by, we have a tax code that none of us can understand. We need to simplify our tax code to make it more fair and competitive.

Thankfully, the news isn’t all bad. In December, the PATH Act was signed into law, which made 20 temporary tax provisions permanent and provided billions in tax relief for families and businesses of all sizes. This legislation lays the groundwork for the objectives of comprehensive tax reform under the next Administration. As the new House Speaker, Paul Ryan has identified tax reform as a top priority for Congress moving forward.

There is still much that needs improving when it comes to our tax code. America must provide the right policies to incentivize companies to build—and keep—jobs and higher wages in the 18th District. But without tax reform that reflects our 21st-century world, America will keep falling back… left out of the future. iBi