One of America's leading authorities on technology and telecom policy, Motley is a writer, television and radio commentator, political and policy strategist, lecturer, debater, activist, and policy advisor to The Heartland Institute.
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Congress hasn’t done major tax reform since 1986. We are WAY past due. And it is WAY past necessary.
The current tax code is an economy-stifling combination of sky-high rates – and stupid mandates and stipulations. Most of what our government has ensconced in tax law – works to drive businesses out of business and out of the country. Taking with them the jobs and salaries they proffer.
Our elected officials say they want to foster a business-friendly environment – so as to make available the most opportunities to the most Americans. Their tax code belies them.
We invite you into our house – and then our tax code simultaneously picks your pockets and beats you about the head and shoulders with a bat. We should at least have the decency to not act surprised when you get up and leave.
We need to rewrite tax law – that has for decades incentivized a mass American business exodus. This America Last, “Made In America Tax” code – is terrible policy.
The tax reform currently proffered by Congressional Republicans – is several HUGE steps in the right directions.
Start with the corporate tax rate. Currently, it is 38.9% – the world’s third highest, according to The Tax Foundation. The Republican reform lowers that rate to 20% – just about a 50% cut. Huge.
But before you can pay the corporate tax – you have to be able to found and form a successful business. The Republican reform makes that oh-so-much-easier: “(I)t provides the best environment for capital formation we have ever had, especially in terms of cashflow for startups. Under current law, the cost of a new factory or machine is a deduction for tax purposes only over a period of years. Under the House plan, all investments can be expensed—that is, they’re eligible to receive an immediate deduction in the year they are placed in service. Since new investments typically do not produce enough income to offset their cost in the first year, the firm usually has a “net operating loss,” meaning that their costs exceed their income. As under current law, this loss can be carried forward into the succeeding years until the year’s income finally exceeds its expenses. By allowing expensing of new investments, most new firms will not owe any tax in their first few years of operation—the period when cashflow is most critical.”
Then there is how our code chooses winners and losers – as to where businesses decide to do business. Again, DC says it wants job creators in America – DC’s tax code says it doesn’t: “We currently tax based on where goods are produced and not on where they are sold. So, a Mercedes leaving Hamburg actually gets a rebate from the German government on its taxes (a so-called value-added tax) because it is destined for America, not Germany. And because we tax by where goods are produced, the Mercedes avoids taxation here as well. Alternatively, a Cadillac destined for Germany pays U.S. taxes because it was manufactured here and is then taxed again in Germany because that’s where it’s sold. So the Cadillac is taxed at two points in the chain, and the Mercedes is not taxed at all. Seem fair to you?”
Seems inordinately stupid to me. Republican tax reform – fixes this stupidity too: “The new tax base is figured by subtracting domestic costs from domestic sales. So, if the sale in question is not made domestically (meaning the good is not destined for America), it is not subject to tax, just like the Mercedes manufactured in Germany. But if the costs of production are not incurred here, they are not deductible—just like the Cadillac as far as Germany is concerned.”
This is the “Border Adjustment Tax (BAT).” Which is drawing some fire – from normally friendly people: “The Club for Growth has begun an advertising campaign aimed at pressuring Rep. Kristi Noem, R-S.D., a tax writer, to oppose a contentious House GOP proposal to tax imports and exempt exports, the latest salvo in the battle to shape lawmakers’ attempts to overhaul the tax code.”
And they are firing – with some seriously faulty numbers: “The group said that the border adjustments proposal would increase an average family’s annual expenditures by about $1,700.”
Thankfully, Club for Growth is engaged in highly flawed tax reform analysis. They’ve unilaterally taken the BAT out of the entire Republican reform package – and assessed its cost as a stand alone proposal. Thankfully, this is ridiculous.
Yes, a 20% tax on imports – all by its lonesome – costs money. But that’s not all Republican tax reform does. As Americans for Tax Reform President Grover Norquist recently noted on CNBC: “(W)hat you’re looking at is we’re going to take the corporate rate to 20, we’re going to do full expensing, get rid of the death tax, the AMT, cut the capital gains tax. These things are all consensus issues. The whole package fits together. In it, is border adjustable.”
Thus, in totality, Republican tax reform will SAVE average families about $4,600 per year – per, again, The Tax Foundation.
How do we know cuts in the taxes levied on business save families money? I’ll let the late, inordinately great Ronald Reagan – on “The Tonight Show Starring Johnny Carson” circa 1975 – explain: “Taxes are hidden in the so-called business taxes. You know the politician that stands up and says ‘Oh – let’s save the Little Man, let’s tax business.’ And everybody yells hooray. But they haven’t figured out – that every tax on business is just a part of the cost of production. And thus customer ends up paying it when he buys the product.”
Republican tax reform as proposed – in the aggregate – is a massive tax cut for businesses. Which – in turn, per Ronald Reagan – is a massive tax cut for Americans.
And Republican tax reform has the added benefit of re-incentivizing businesses to start and stay in America.
Which is great for Americans – because before they can pay taxes, they have to be hired by companies to have an income to tax.
Concepts all – not at all difficult to grasp.
[Originally Published as Red State]