It has been over thirty years since the United States has seen such massive opportunities to amend the tax code. The last time was during the Reagan years. There are some ideas on the table that would make President Donald Trump’s tax reform as bold and pro-growth as President Donald Trump’s.
The status quo has presented this critical opportunity at an unprecedented time. Congress must act swiftly for this may be the last opportunity in a long time to trim the fat that has been complicating American business for decades. Whatever this next chapter of tax reform may be, it will be staying with American’s long after Trump’s presidency has ended and maybe another thirty years.
A tax plan is in the process of being drafted in Congress behind closed doors right now, and the million-dollar question on everyone’s mind is whether or not it will benefit American workers and businesses. As Congress enters the territory of legislation, it must be mindful that tax reform has the potential for economic prosperity while also bolstering unintended consequences.
President Donald Trump has proposed some controversial policy changes in his first 100 days, and on the list is the Border Adjustable Tax (BAT). BAT is an economic proposal to cut the business tax rate from its current 35% to a 20% — 15% range while then also introducing a “border-adjustment” tax that effectively taxes imports and does not tax exports. Basically, BAT intends to give businesses a tax break as an incentive to stay in business in the U.S. while also telling companies to tread carefully when it comes to outsourcing and shifting profits to low-tax countries.
No doubt, the proposal is controversial, and is by no means set in stone. That is why that at this moment economists and policymakers from around the country are trying to create new ways to apply the legislation. But the main takeaway is that the BAT is the first proper catalyst in a long time to create such a favorable reaction to tax reform. It is about time that legislators are engaging in properly oriented discourse on long-term fiscal and tax policy with American business present being the number one priority.
BAT promotes an “America first” tax plan that promotes business not only to stay in the country, but to come to the U.S. to open business. Currently our high taxes on corporations encourages them to reorganize outside of the United States to avoid paying far too much. Not only do collectible taxable profits disappear, but it also forces American companies to compete with foreign “American” corporations that pay lower taxes.
Using Hollywood as an example, the same has happened. Production companies have begun to move out of the Golden State to Toronto, in Canada, where taxes are more favorable. It is only recently, have companies considered returning, seeing cities like San Diego offering tax incentives and reducing other codes that had only bogged down film productions.
It should be no surprise that companies will go where their costs are the least. Rather than seeing them as anti-American, it may be a better point of view, to look inward and find out why they left in the first place. This way, we can discover that these companies actions are not issues in themselves, but rather responses to unfavorable and tangling American tax codes — the United States has highest corporate income tax in the world.
The Border Adjustment Tax is one idea that may help to convert our tax system into one that benefits American business — both in existence and in conception. The practice of U.S. corporations reorganizing in foreign lands represents the loss of American jobs, but most importantly, the loss of American businesses from entering the market in the first place. Only large companies can afford to move overseas. Small and medium companies will fight to compete, but ultimately they will be heavily hurt by incompatible and just plainly unbeatable competition.
The Federal Reserve is be in the process of raising interest rates; the Senate on the nomination of Neil Gorsuch to be on the Supreme Court; and the House on removing Dodd-Frank and the future of Obamacare. Yet the most vital debate today is on tax reform. Tax reform presents a unique opportunity to create a more predictable and presentably safer environment for American’s to do business.
Congress must tread carefully, but at the same time it must not let this opportunity pass. American businesses have been clamoring for reform — and the time is now.
Jonathan Lee is an economics student and freelance political journalist residing in Orange, California. He is a contributor to The Washington Examiner, the Foundation for Economic Education (FEE.org), and Red Alert Politics.