Competition among the Republican Presidential candidates has resurrected talk of tax reform. First, Herman Cain led with his “9-9-9” plan, which has the virtue of simplicity, but which also hadn’t been well vetted before it was sprung on the country in one of the Republican debates. It thus has already been modified by its proponent in response to objections, and one expects that it will probably be further changed in response to further substantive issues raised against it.
Then Governor Perry cheered the hearts of many longtime tax reformers by resurrecting the Flat Tax, a concept that has been carefully vetted over a number of years. The strengths and weaknesses of the Flat Tax are well known, and much thought has already gone into transitional issues and other ramifications of moving to a flat income tax.
Of course, the reality is that Presidents can’t reform the tax code—Congress writes tax law, after all. And Congress—particularly the Chairman of the Ways and Means Committee—is known to be quite territorial about that privilege.
But President’s do have the “bully pulpit,” and presidential candidates have a bully podium. They can bring attention to an issue, and if that issue helps power them to office, Congress would have to at least take note.
It’s great that we are starting to talk about tax reform, because nothing has more potential to get our economy rolling again than reform of both our individual and corporate tax regimes. Right now our tax code throttles down our global competitiveness with high statutory and effective marginal tax rates on corporate production, outdated depreciation rules that discourage the kind of immediate investment that would jump-start our economy, and taxes that hit saving and investment dollars so many times that they are whittled down to a nub insufficient to stimulate adequate economic growth.
Fundamental tax reform can address all of these problems and give the U.S. a 21st Century tax code that no longer handicaps American companies and workers as we compete globally.
The problem is that fundamental tax reform will take time, and we don’t have time—we need to get America back to work now. Since the most egregious parts of our tax code are known, we’d like to see a presidential candidate start talking about things that could be done immediately to address our tax code problems, such as a tax holiday on the repatriation of billions of dollars held by American companies offshore, an investment tax credit, and immediate expensing of business investment. These ideas would easily transition into whatever major tax reform might come later, but would jump start economic growth now.