In any society, the amount of taxation and the manner of collection is the single most important determinant of how well its economy will perform. Speaking as someone who spent a significant amount of my career as an efficiency expert, I can tell you our current tax system is the root of many of our current economic troubles.
The actual law for the income tax is 3,387 pages. The IRS has a total of 13,458 pages of regulations to implement the income tax, using 865 different forms and 321 instruction pamphlets. Other countries must think we`re crazy.
We need fundamental tax reform—and I have a plan that`s simpler, fairer, broader and lower.
By global standards, the United States has one of the most complex tax codes in the world. The current system obviously undermines our confidence, and undermines our competitiveness, as American businesses tangle with an ever-growing sprawl of red tax tape.
Yet, the response provided by the White House and Senate Democrats is that we need MORE. More taxes, more regulations, and more convoluted laws that don`t do anything but ensure that you and I lose more of our financial freedom.
For example, Democrats conceived and voted for the "Buffett Rule." The Buffett Rule is a political gimmick that even Democrats admit doesn't create jobs, balance the budget, or solve our out-of-control debt crisis. It promotes "fairness" by making an unfair comparison between income taxes and capital gains taxes. It also distracts from the truth that capital investment is actually taxed at least four separate times under our tax code.
- It`s taxed first by America`s uncompetitive corporate income tax, which is now highest in the world.
- If it`s paid out as dividends, then it is taxed again by the individual income tax.
- If the value of the capital interest increases, then it is taxed again by the capital gains tax.
- If there`s any left at the investor`s death, then it`s subject to taxation again by the death tax.
It`s no wonder that it seems like the only ones investing in America are the Chinese.
By favoring certain economic activities over others, the tax code distorts financial decisions and reduces economic efficiency. We need a reformed income tax system for this country that is simpler, more broadly based and therefore fairer to all and specifically designed to stimulate our economy by lowering taxes on investment and job creation.
The single most effective action to clean up special interests in Washington would be to scrap the existing tax code and replace it with a fair and simple one. Here`s what I propose:
- Simplify the tax code and make it flatter and fairer.
- Broaden the tax base by repealing loopholes and shelters.
- Renew the 2001 tax cuts and make the death tax repeal permanent.
- Reduce the corporate tax rate to make it competitive.
- Provide strong incentives to repatriate foreign earnings by adopting a territorial tax system.
- Create a domestic system that encourages savings and investment in America.
There isn`t an American business owner who looks at their business and thinks, "I`m not hiring another worker until Congress passes a tax hike."
The tax code reduces incomes through punitive taxes on saving, work, and entrepreneurship. It places multiple layers of taxation on saving, thus reducing investments in new machines and technology that make American workers more efficient and competitive.
But the loopholes, deductions, and shelters of our current system allow some people to hide a large portion of their income from taxes. This has created a situation where taxpayers with similar incomes can pay vastly different amounts in taxes. This in turn forces the rest of the taxpayers to pay a larger percentage of their income to make up the difference.
We can broaden the individual income tax base by repealing loopholes and shelters and at the same time greatly reduce tax rates and eliminate tax brackets, creating a flatter, fairer and simpler system.
While the economy is showing some growth, there is still too much uncertainty and anxiety in the marketplace. One of the ways we can inspire confidence for the middle class is to renew the 2001 tax cuts make them permanent. Predictability and certainty of our individual tax burden will lead all of us to invest in the economy again.
One reason that class warfare has become the Democrats` stock in trade is because it blunts their uncontrollable spending problem. The best reforms should do away with the battle over who gets what slice of the pie by providing the ingredients to make a bigger pie. In other words, as Marco Rubio likes to put it, we don`t need more taxes, we need more tax payers.
Let`s reform the tax code to provide job creators with the opportunity to actually create jobs. We can start by reducing the corporate tax rate. Our corporate tax rate is not competitive compared to the rest of the world. This makes it harder for companies to hire new workers and contend successfully with international competition. We should reduce the corporate tax rate to be competitive with Europe and Asia and structure the law to provide an incentive for businesses to repatriate foreign earnings.
The biggest penalty imposed by our current corporate tax system is actually the worldwide tax system, where profits made by an American-owned company — like Apple — are subject to U.S. taxes whether the plant is located in California or India. It means that corporate profits earned both abroad and at home are taxed at a higher rate than in most other countries. Which is why corporations get a "break" on their tax bill as long as their profits are not repatriated. As a result, many companies choose to keep their profits overseas.
We should adopt the territorial systems that most developed nations use, that exempt most or all foreign income from taxes when they are repatriated. A territorial tax system would bring us in line with our global trading partners and would eliminate the so-called "lock-out" effect in the current worldwide tax system that discourages repatriation. Again, we`re increasing the size of the pie.
We need a tax code that`s simpler, fairer, broader and lower. We need a tax system that offsets losses by encouraging investment by families and businesses alike. And tax reform that provides stability and opportunity across the economic spectrum.
America appreciates fairness. It craves opportunity. And it applauds courage. We need leaders in Washington to provide all three.
Q&A on Tax Reform
Q: How deep do you believe our tax rate cuts should be?
A: The international average is 26%. The U.S. tax code should not contain any rate higher than 25%, with lowest rates reserved for domestic business.
Q: How would you pay for the tax cuts? Won`t they add to the overall deficit?
A: Everything I`ve proposed adds to economic opportunity and market stability, two important factors in job creation and economic growth. Any loss in revenue from the current tax base should be more than offset by the increase in job creation, which provides a greater number of taxpayers. Again, we`re not fighting over small slices of pie; we`re making a bigger pie. I`ve also called for a thorough review of every federal department and agency to see where we can save money. We need leaders who will work relentlessly to reduce government spending.
Q: Name one loophole or shelter that you would cut or repeal.
A: I`d start by repealing the rule allowing U.S. corporations to "defer" U.S. taxes on their offshore profits. That`s why many companies choose to keep their profits overseas. I propose adopting a territorial tax system like our international partners use to encourage repatriation of foreign profits.As far as other loopholes or tax shelters, I don`t think we should take anything off the table. Let`s look at everything and discuss the merits.
Q: Have you thought about increasing credits for health savings accounts?
We need to level the playing field among the various health insurance plan types to create a competitive insurance market place. We should simplify the tax treatment of medical insurance, not expand the tax code involvement in healthcare.