It looks like I wasn’t the only one unhappy with the president’s economic proposals in the State of the Union. In a New York Times op-ed this week, Glenn Hubbard, too, voiced his disappointment:
“Our unwillingness to confront mounting inefficiencies in the nation’s taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. code and growing obligations in entitlement programs has led to increasingly limited options. Corporate tax reform is held hostage to the misguided idea that tax cuts and tax increases must be balanced within the corporate sector alone, and to the faulty assumption that beneficial tax reform will not raise economic activity.”
Hubbard, the former chair of President George W. Bush's council of economic advisors, mapped out a few pro-growth steps to help enhance economic growth – the first of which would do a lot to fix our broken tax code for businesses:
“The first [step] is to move to a simple business tax system, with a lower marginal tax rateThe marginal tax rate is the amount of additional tax paid for every additional dollar earned as income. The average tax rate is the total tax paid divided by total income earned. A 10 percent marginal tax rate means that 10 cents of every next dollar earned would be taken as tax. and no special industry preferences. There would be no separate corporate tax, only a single business income tax for all businesses. Ideally, investment would be expensed, and its cost deducted in the year it was made, rather than deducted gradually. Businesses would be able to bring back overseas profits free of additional United States taxes. A one-time modest tax on current overseas earning could be used to help finance reform. Such a business income tax would encourage both growth and investment opportunities in the United States, while offering more jobs and higher wages to American workers.”
Hubbard’s proposal hits on many of the key points that a business tax reform should include: lowers rates for all businesses, full expensingFull expensing allows businesses to immediately deduct the full cost of certain investments in new or improved technology, equipment, or buildings. It alleviates a bias in the tax code and incentivizes companies to invest more, which, in the long run, raises worker productivity, boosts wages, and creates more jobs. of capital investment, and a territorial tax systems for our businesses that operate overseas.
Additionally, it’s important that Hubbard suggests that comprehensive reform should result in a tax system that treats all businesses the same. Pass-through businesses – which are taxed on individual tax return – make up about 95 percent of all U.S. businesses, earn over half of net business income, and employ a majority of private sector workers in the U.S. (See new report.) This makes it important that tax reform make both C corporations and pass-through businesses more competitive.
These changes are a great first step. This type of tax reform would boost economic growth and help U.S. businesses compete and grow at home and abroad
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