As much as I railed against the fiscal cliff deal, one thing I hoped it would accomplish is to peel away a layer of the economic uncertainty that has put economic growth in a straightjacket. By permanently extending most of the existing federal tax rates, a peeling process has hopefully begun.
Needless to say, we have more peeling to do, so count me among the cheerleaders of a movement to reform and hopefully simplify the federal tax code. While never-ending fiscal melodrama captures the headlines, two members of Congress – Democratic Sen. Max Baucus of Montana, chairman of the Senate Finance Committee, and Republican Rep. Dave Camp of Michigan, chairman of the House Ways and Means Committee – have quietly discussed a tax code revamp.
Their stated goals are worthwhile: to make the system simpler and fairer with fewer loopholes that benefit the wealthy and well connected, and to promote investment and stimulate economic growth with lower tax rates. It’s essentially the same concept that drove the 1986 tax reform law, but hopefully it will have a longer shelf life. Washington being Washington, the ink wasn’t even dry on the ’86 reform before Congress again began to muck up the code with special favors.
The devil is in the details, but it’s encouraging that President Obama and Republican leaders are not pouring cold water on the idea. There still are enough economic cross currents to keep the economy in a moderate growth pattern for the foreseeable future, so anything Congress can do to accelerate growth should be a national priority.
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One tax rate that needs particular attention is the corporate tax rate. Camp wants to reduce the corporate rate from 35% to 25%, which is a step in the right direction. I’m not convinced that’s enough of an incentive to convince large companies to “get off their cash” or bring it home from overseas accounts, but it would be a significant improvement, especially when our northern neighbor, Canada, has a top corporate rate of 15% (and, as my colleague Tom Breuer would add, universal health insurance coverage).
The goal of tax reform is not to starve the government of tax revenue; that would be as irresponsible as excessive spending. The goal should be to incentivize a higher level of business activity and employment – creating more taxpayers – which always results in higher tax collections.
Lord knows, there will be enough hurdles to overcome, but maybe the stars are aligned for next-generation tax reform.
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