Time for Leadership on Tax Reform

By January 25, 2012Taxation

The January edition of Member Focus hit mailboxes this week and is also available here. Below is this month’s column from NAM President and CEO Jay Timmons on the need for tax reform.

Time for Leadership on Tax Reform

By Jay Timmons, president and CEO, National Association of Manufacturers

Jay Timmons, NAM president and CEO

Jay Timmons, NAM president and CEO

Congress and the President concluded 2011 by showcasing the dysfunction that has inspired cynicism among the American people.

The most recent fight centered on whether an extension of the so-called “payroll tax holiday” would be in effect for two months or for an entire year. The two-month extension won the day, so Congress and the President will have this debate again soon.

Businesses cannot plan a budget or operate efficiently when our elected leaders are running the country on a month-to-month basis.

Then again, no one can praise Washington’s economic logic.

Last summer, our leaders finally acknowledged our nation’s tremendous debt problem. Congress and the Administration agreed to cut $1.4 trillion over 10 years—an amount that matches our deficit for one year—and empowered a “Super Committee” to get the job done.

During deliberations, the Super Committee refused to touch one of the main drivers of our debt: entitlement programs like Social Security and Medicare, which comprise 60 percent of the budget.

The Super Committee failed to reach a deal—and nothing was done to ensure long-term sustainability of these entitlement programs. Then, attention turned to the expiring payroll tax holiday.

The payroll tax is, of course, completely dedicated to the financially troubled Social Security and Medicare systems, and the misguided “holiday” depletes the income stream dedicated to these funds.

So, Congress and the President failed to address the debt problem and then compounded it by borrowing more to recoup the losses to our financially strapped entitlement programs.

Shenanigans like that don’t inspire confidence about how our leaders will handle the vital decisions that need to be made before the end of this year.

With individual tax rates set to rise in 2013, they can redeem themselves by engaging in a meaningful discussion about comprehensive tax reform that improves our country’s competitiveness.

Corporate tax rates and individual tax rates need to be part of the same conversation. Since 65 percent of manufacturers pay taxes at individual rates, any tax reform for business has to include both.

The National Association of Manufacturers (NAM) has advocated reducing the corporate tax rate to 25 percent, primarily because that is roughly the average rate among developed nations. But we can’t focus solely on a number—the corporate tax should be set at the rate needed to make us competitive, whether that’s 25 percent or, more likely, a lower number. And while dropping to the world average would certainly be an improvement, the United States did not achieve its greatness by striving to be average.

While Congress needs to prevent a tax increase in 2013, that effort should lead to a broader discussion about the way the country taxes individuals.

The President and some members of Congress have associated themselves with the Occupy Wall Street movement and its class warfare message that there is unfair income distribution in America and that more individuals should be entitled to what others have worked to achieve.

Our individual tax code creates significant inequality— but not the way the Occupiers portray it. Our current tax laws enable some 52 percent of tax filers to pay no income taxes at all. Over one-half of all filers don’t even pay the equivalent of a cup of coffee in income taxes in exchange for all the benefits that revenue provides.

As for the vilified “1 percent,” those taxpayers pay 37 percent of all individual income taxes. The top 10 percent pay more than 70 percent.

With an election just months away, the political current will make substantive policy changes difficult to achieve. But comprehensive and pro-growth tax reform is possible, as long as there is leadership at the presidential level that resists the urge to engage in destructive and entirely inaccurate class warfare rhetoric.

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