On Monday, September 15th, the Wall Street Journal reported that the International Tax Competitive Index reveals that the U.S. tax burden on business is virtually the worst in the developed world.
As the Wall Street Journal observed, "With the developed world's highest corporate tax rate at over 39% . . . the U.S. is almost in a class by itself." The U.S. "ranks just behind Spain and Italy" and only Portugal and France are worse. Yes, the tax burden the U.S. government imposes on its people is more onerous than those imposed by the governments of such "progressive" countries as Sweden, Norway, and the United Kingdom.
Many liberals argue that current U.S. tax rates (the highest in the industrialized world) are still lower than when Ronald Reagan became president and so they don't need to be changed. However, President Reagan's tax cutting policies sparked "a worldwide revolution that has seen waves of corporate tax-rate reductions" resulting in the Tax Foundation reporting "that other countries have reduced 'the OECD average corporate tax rate from 47.5 percent in the early 1980s to around 25 percent today.'" Apparently the world has learned what our own government has forgotten – oppressive and confiscatory tax policies lead to economic stagnation and less, rather than more, affluence for everyone.
As Winston Churchill observed many years ago, "The inherent vice of capitalism is the unequal sharing of blessings. The inherent virtue of socialism is the equal sharing of miseries."
And not only are corporations and businesses suffering under our current tax code. William Galston has reported in the Wall Street Journal that Sentier Research reports, "Inflation-adjusted median household incomes are 9% lower than in 1999 and about the same as in 1989." ("A Middle-Class Litmus Test for the Economy," Oct. 1, 2014.)
One of the oldest axioms of public policy is as follows: "what you tax you will get less of and what you subsidize will increase."
Thankfully, help is on the way from two U.S. Senators who understand that the tax code is public policy and that this ancient axiom of public policy are both true.
These two Senators are Senator Mike Lee (R-Utah) and Senator Marco Rubio (R-Florida). They explain their new tax reforms in a Wall Street Journal op-ed., "A Pro-Family, Pro-Growth Tax Reform" (Sept. 23, 2014).
While the Senators promised to address business and corporate tax rates by cutting that rate substantially "to make it competitive in the global economy," they focus on bringing tax relief directly to American families.
Senators Lee and Rubio put forward a truly transformative tax policy reform. In addition to reducing the current tax code monstrosity with two simple tax brackets of 15% and 35%, they "would eliminate the well-known marriage penalty, which imposes higher taxes on married couples than if they had filed individually" and "would also take aim at another pernicious distortion – the parent tax penalty.
The Senators explained, "Millions of Americans up and down the income scale choose to invest their personal economic freedom in children and not just in commerce – in human and social capital rather than just financial capital. We believe it is wrong to punish such a choice."
The Senators propose addressing the "parent tax penalty" by "augmenting the current child tax credit of $1,000 with an additional $2,500 credit, applicable against income taxes and payroll taxes – i.e., the taxes that most burden lower – and middle – income families" and would not "phase out" as income rises beyond certain levels.
In other words, parents with three children would be able to apply a $10,500 tax credit against their tax bill, including Social Security and Medicare taxes. To a family making $50,000, this would be a God-send and would help undo the 9% drop in median household income referred to above by Galston.
The Senators would also reform the system to eliminate the harsh disincentives currently impeding lower income workers rising into the middle class by constructing "a welfare system that works better and removes poverty traps."
This plan, if implemented, would strengthen current families, encourage family formation, and revalue child-rearing in our culture by revaluing it in the tax code.
It would also unleash the pent-up entrepreneurial spirit of Americans and American businesses large and small. A 4% growth rate in our economy would bring in enough new revenue to the government to make the excruciating budget decisions Congress will face in the near future much less painful.
It would also make American working and middle class families confident once again that their children will have a better financial future than they have, rather than the current belief that their children will perhaps be the first generation of Americans to have a lower standard of living than their parents.
Having more and stronger families, more and stronger businesses, and a stronger and larger economy would benefit all Americans in substantial and important ways, both economically and socially. The tax code is public policy, for good or ill, and it will, and does, have real consequences for real people in their real lives.