Hatch: Tax Reform Will Take America from 1986 into the 21st Century
Thirty-one years ago this week, President Ronald Reagan signed the Tax Reform Act of 1986 into law. This date is particularly significant: It was the last time Congress and the president worked together to overhaul our tax code.
The world today looks vastly different from the world in 1986. It is much more connected, globalized and driven by new technologies and the internet. But our tax code is stuck in the days where the Chicago Bears were winning the Super Bowl and “Top Gun” was number one at the box office.
A major impetus for the 1986 reform was the growing complexity of the U.S. tax system. But now, after years of many piecemeal changes, our tax code has become even longer and more complex, requiring taxpayers to spend millions of hours and billions of dollars each year just to comply with the code and file accurate returns.
In 1986, we reduced the number of individual income tax brackets from 15 down to five, ushering in the modern era of American tax policy. But in the 31 years since we last “modernized” our tax system, growth has slowed, wages have stagnated and our sluggish economy has left middle-class families behind. If we're going to help those taxpayers, new changes are necessary.
We need a simpler tax code that puts more money back into the pockets of workers and families.
To do that, it needs to make American business more competitive around the globe. In 1986, America’s corporate tax rate was on par with other industrialized countries and our international code was comparable to those of our major trading partners, according to an analysis by the Tax Foundation. Today, we have the highest statutory and fourth highest effective corporate tax of developed countries.
Our sky-high corporate rates, combined with our outdated global tax system incentivizes companies to ship jobs and capital overseas, directly contributing to lagging economic and wage growth.
To address these problems, a number of my colleagues and I have spent years working toward fundamental and comprehensive tax reform. In the last several months, with the support of a willing administration, we have ramped up our efforts. As a result, we are closer to the tax reform finish line today than we have been at any other point since 1986.
Leaders in the Senate, the House and the administration are on the same page as we work to advance a tax reform proposal that would provide financial relief to low- and middle-income families, simplify our complicated tax code and allow businesses small and large, to compete in today's worldwide economy.
Our updated system would provide clarity and simplicity. Under our proposed plan, the vast majority of taxpayers would be able to fill out their returns in a matter of minutes.
Further, it would modernize the business tax system by lowering rates and updating how we tax international business income. For example, a concept that has bipartisan support entails shifting from the United States' outdated, worldwide tax system – where a company incorporated in the United States pays corporate taxes on all of its income, whether earned here or overseas – to a territorial tax system, where a U.S. multinational’s domestic income would be subject to the U.S. corporate tax, while the company’s foreign income would generally be exempt from U.S. tax.
This change would make the United States a more attractive place to grow and start a business, meaning more investment and innovation here at home.
Combined, the reforms we propose would mean bigger paychecks for hardworking, middle-class taxpayers, according to an analysis by economists Seth G. Benzell, Laurence J. Kotlikoff and Guillermo Lagarda. Much of the growth, according to their analysis, would be a direct result of reducing the corporate tax and transitioning to a territorial system. Increased productivity and accompanying wage growth could mean roughly $3,500 more per year in the pockets of the average American family, they have found.
Tax reform was important in 1986, and it is equally important today. We cannot maintain the status quo, and failure to enact meaningful tax reform would mean further damage to our economy and a lower quality of life for Americans.
The American people need us to succeed. And we don’t intend to let them down.
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