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The United States is a global leader in an undesirable Economic category, corporate tax rates. As a result, private capital investment largely left American markets for lower tax environments, as global investors sought to maximize returns. As a result, shifted resources restrained our economic growth, harmed employment, and reduced our competitive advantage. Politically, Tax Reform will deliver President Donald Trump his first legislative victory. More importantly it will support the economic turnaround that coincided with the start of the Trump Administration.

First off, taxes are essential for any government to perform services, protect communities, invest in the economy, and move society forward. In the United States, the federal government attains the needed revenue largely through two tax codes, one levying taxes on individual incomes and the other on corporate profits. Despite other sources of revenue, these two channels largely provide much of the financial resources to fund the federal budget that now exceeds $4 trillion.

Once Congress resolves divergent tax reform bills through conference, Americans will face a simplified tax code and businesses will receive more equitable tax treatment. The differences between the passed bills are number of brackets, length of term, AMT, and individual mandate. Also, conference members will need to resolve potential negative impact on citizens in high tax states and those in the $10-22 thousand income bracket.

Given the importance taxation played in our history, one cannot downplay the political sensitivity surrounding tax reform. Conservatives support lower taxes, while their liberal counterparts provide little resistance to tax increases. Which one is right? Generally, economists support the idea that lower taxes are good for the economy. In free market economies, lower taxes foster economic efficiency and consumer spending, which is a major economic driver.

Furthermore, the United States does not operate in a bubble, especially with the growth of emerging economies and global tax havens. As globalization expands, national borders no longer restrict financial investment or human capital deployment. In order to compete in global markets, national governments need to consider the total domestic cost of doing business as well as the cost of living. Reducing barriers to both will improve investments and attract talent. Lowering the cost of business will attract investments and lowering the cost of living can make America a more desirable place to live.

Beginning with the personal tax code, Americans seek tax code reforms to reduce the cost burden on many middle and working class households. Combined with stagnant wages and higher cost of living, many Americans in these brackets see discretionary income become non-existent, while their social burden continues to increase. In simplifying the code and reducing rates, many Americans will retain more of their hard earned income to invest, save, spend, or reduce household debt. While not largely transformative, consumer spending is significant driver of our national economy, which more available funds in the hands of workers would help.

For the corporate code, the argument for reform is quite clear and generally accepted. As stated earlier, the United States tax code is among the highest in the developed and industrialized world. Reducing it can go far in improving domestic economic conditions and repatriating the estimated $3 trillion of corporate profits stashed overseas, which all positively impact government revenues. The cost advantage lower tax nations have on the United States is going beyond manufacturing, but other economic sectors as well. Improving the tax code is a great first step in improving our global competitiveness.

The issues faced with tax reductions is the short term impact on government revenues, creating national deficits. Based on evaluations by both the Joint Commission on Taxation and the Congressional Budget Office, tax reform will create a $1 trillion deficit over a decade, considering a conservative estimate of economic growth. Government spending restraint and budget reforms can go along way in improving our fiscal health and eliminating the impact of projected deficits.

Besides the usual rhetoric, tax and spend politicians provided little to no real opposition. While the proposed legislation is not perfect, the need for tax reform is quite obvious to all, especially both voter bases. Americans need to retain more of their hard earned income. Americans need to see opportunities for job creation and income mobility increase. An imperfect bill enacted in our imperfect can still provide the needed outcome of supporting our economic turnaround. 

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