Editorial: Trump should tackle tax code
It would be nice to wake up one morning soon and find out that President Donald Trump had devoted his pre-dawn tweeting to an overhaul of the federal tax code. Businesses and investors have expressed confidence that better tax policies are coming, as witnessed by the stock market run-up, but the president has not signaled a timetable.
Comprehensive tax reform that encourages job and investment growth and boosts the cash available to families would be a nice diversion from the scandal mongering in Washington, and refocus Trump’s attention on priorities that actually matter.
The major piece of required work is on corporate taxes. At 35 percent, they’re too high, and they hurt America’s competitiveness among industrial nations where the average of such taxes is 25 percent. Moving the rate down to 20 percent — or lower — would encourage companies to expand and invest in new job creating enterprises.
The Tax Foundation says cutting the rate to 20 percent would result in 600,000 new jobs. The job and investment growth would generate tax revenue that would more than compensate for the lower rate.
Even President Barack Obama acknowledged the corporate rate was too high, proposing to lower it to 28 percent when he was running for re-election in 2012.
The next step is repatriating the estimated $2 trillion in foreign earnings by American corporations that is currently sitting off-shore to avoid double taxation.
Policies that fully tax overseas profits when they’re returned home, even though they have already been taxed in the countries where they were earned, has created a perverse incentive for corporations to move their headquarters offshore.
Allowing that money to reenter the country at a low tax rate, say 10 percent, would flood the United States with new investment dollars and greatly boost tax revenues.
Obama raised capital gains taxes; Trump should cut them. The capital gains tax stands at 23.8 percent. Even a small cut to 20 percent would bring investment dollars out of hiding, and returning it to the 15 percent rate could help the economy reach the 3 percent growth rate Trump is promising.
Trump said in his speech to Congress last week that he wants to expand tax credits for families, including one to help pay for child care. Boosting the deduction for minor dependents would also help families cope with rising costs for such things as health insurance at a time when household income growth is slow.
Greater credits to encourage saving for retirement and college could also ease some of the anxiety Americans feel about the future.
Those are some of the must-do basics. A much broader reform effort would also examine whether a consumption tax to replace all or some of the income tax is a better pro-growth policy. Likewise, moving businesses from depreciation of hard assets to full expensing could accelerate investments in equipment. And small businesses, many of which report their earnings as individual income, can’t be forgotten.
The potential for tax reform was one reason a lot of people who might not have been excited about Donald Trump still welcomed his election. He should deliver.