The Blue Dog Vision for Tax Reform
A LONG-TERM, SUSTAINABLE SOLUTION IS A BIPARTISAN SOLUTION. Tax reform must be done in the most responsible and sustainable way — and that means it must be bipartisan. Every day, hardworking Americans have to plan for their financial futures, small business owners have to make payroll, and companies have to decide if they are going be able to afford to expand their operations and create more good-paying jobs. When it comes to making long-term decisions, individual Americans and companies need to have the certainty of a long-term solution. If Republicans decide to use a partisan process, like reconciliation, the American people, the small business community, and American companies will see a temporary band aid for a complex, long-term problem at best. As we have seen throughout this Congress, when it comes to major reform, partisan processes simply don’t work. Without a long-term, sustainable solution, Americans will have a tougher time planning their finances and companies will refrain from expanding in American communities.
We are opposed to using partisan processes, such as reconciliation, that make real and permanent reform to our tax code difficult.
We urge that leadership pursue tax reform using a bipartisan, inclusive approach.
TAX REFORM MUST BE FISCALLY RESPONSIBLE. With a national debt that has surpassed $20 trillion, the American people can’t afford tax reform that adds to the deficit and worsens our debt. If reform worsens the deficit and the debt, we will see reduced economic growth, fewer jobs, slower wage growth, and higher interest rates — all of which would counter the benefits of enacting tax reform in the first place. Determining how to offset the costs of tax reform will not be easy, and it must be done through an informed, deliberative process. That’s why it’s important for any tax reform legislation to undergo independent, non-partisan analysis of its cost, and its impact on the economy, job creation, and the federal budget. Congress should not break its promises to the American people by slashing domestic programs, important safety nets like Medicare, Social Security, or Medicaid, or by harming job growth to pay for tax reform.
Tax reform must be credibly revenue neutral.
Unrealistic, rosy economic growth projections should not be used to offset the costs of tax reform or tax relief.
The tax reform package must be scored by the Joint Committee on Taxation (JCT) and the Congressional Budget Office (CBO) using standard scoring rules.
Congress should not pay for tax reform by breaking its promises to the American people by slashing domestic programs, cutting important safety nets like Medicare, Social Security, or Medicaid, or by harming job growth.
A SIMPLER TAX CODE THAT PRIORITIZES THE MIDDLE CLASS. It’s no secret that the majority of Americans feel as though the middle class pays too much in taxes and the wealthy pay too little. An average middle-class family with one child making $50,000 annually in the15 percent marginal income tax bracket pays $2,682.50 per year in federal income tax alone. Tax reform must prioritize the needs of individual Americans and middle-class families. We must reduce the burden on middle-income families by simplifying the tax code. We must protect and simplify tax incentives for vital necessities such as retirement, medical care, and education. As we work toward simplifying the tax code, we also must recognize that certain deductions and credits benefit American families, including the Earned Income Tax Credit (EITC), the child tax credit, the mortgage interest deduction, and the state and local tax deduction.
Middle-class families need to be the focus of tax reform. Tax reform should not shift the distributional balance to the wealthy.
We must not burden the middle class as an offset to lower the corporate tax rate.
Congress must recognize that certain tax deductions and credits are vital to achieving the goals of the American Dream, including raising children, buying a home, paying for college tuition, obtaining medical care, making charitable contributions to their community, and reaching a financially secure retirement. The Blue Dogs believe that we must protect these important benefits.
Tax reform must incentivize work, and we should consider expansion of refundable tax credits for lower-income earners such as the Earned Income Tax Credit (EITC).
A TAX CODE THAT PROMOTES ENTREPRENEURSHIP, JOB CREATION,
AND PRIVATE INVESTMENT. Today, the statutory federal corporate tax rate is 35 percent, one of the highest in the world. At the same time, corporations contribute to only about 9 percent of total U.S. tax revenue. Accounting for additional tax provisions and loopholes, many corporations pay an effective tax rate that is closer to 24 percent. Nonetheless, under the current tax code, American companies face complex incentives when deciding whether to invest domestically or overseas, where to locate their workforce, and how to structure themselves. We must move toward an international tax policy that is fair, efficient and makes American companies more competitive in the global market. Tax reform is an opportunity to create more good-paying jobs and increase private investment at home. The Blue Dogs are open to proposals that level the playing field between domestic and multinational companies, strengthen anti-base erosion rules, and include other provisions to ensure tax reform does not lose revenue. While lowering the corporate tax rate, we must incentivize companies to increase private investment in the United States and disincentivize actions such as stock buybacks that benefit stockholders and do not represent real investment needed for long-term economic growth. We recognize that companies have developed business plans based on certain tax provisions, and if Congress decides to alter those provisions, companies should be afforded time to transition to the new tax structure. We are open to repatriation policies that bring corporate profits from overseas back home, ensuring America can compete globally, while also ensuring an adequate taxation rate for the cash and working assets held overseas.
A growing share of the business community consists of pass-throughs, including small businesses, which face different treatment under the current tax code from corporations. As we reduce the burden on middle-class families, we must also ensure tax reform meets the needs of small businesses and the Blue Dogs are open to proposals that would provide relief to them. To successfully do so, we must remember the lessons learned at the state level in Kansas, where poorly-written laws intended to help businesses were abused by other taxpayers and caused extensive budget shortfalls. We must also ensure that benefits are targeted to Main Street businesses instead of entities like Wall Street hedge funds or partnerships.
Tax reform must ensure our companies remain at the cutting edge of innovation and continue to be major global competitors. That’s why we should retain and strengthen important credits, like the research and development credit, to ensure America can maximize its return on important private sector innovation. We should prioritize the credit toward smaller startups. We should also consider measures to encourage hiring by start-ups and reduce burdens for nascent entrepreneurs.
In order to maintain our ability to compete globally, American companies need a more competitive corporate tax rate and structure.
If we move toward a territorial tax system, we must take steps to prevent companies from shifting income and jobs to offshore tax havens. We can do so by implementing low-level taxation on foreign earnings, strong anti-base erosion rules, or other methods to keep sufficient revenue. Congress needs to be cognizant that not all U.S. firms operate globally, so tax reform must balance foreign tax regime changes with the needs of all domestic firms, especially small and medium enterprises.
We should incentivize American companies to reinvest the benefits of tax reform into new jobs, increased wages, worker training, and facilities in the U.S. instead of profiting stockholders in ways that do not represent real investment needed for long-term economic growth.
We recognize that companies have developed business plans based on existing tax rules, such as certain accounting or expensing provisions. If reform of these business provisions is pursued, companies must be provided clear transition rules and sufficient time to adjust to new tax structures to avoid disruptive shocks.
We must reduce the tax burden on small businesses, which are often structured as pass-throughs. Based on the lessons from Kansas, we agree that we must develop strong rules to prevent taxpayers from mischaracterizing wages as pass-through business income. These tax rules should also be structured so that benefits target Main Street businesses instead of entities like Wall Street hedge funds or partnerships.
The tax code should incentivize innovation, expanded research and development, and commercialization, and set a foundation for the manufacturing of those goods in the United States.
A TAX CODE THAT SUPPORTS PUBLIC INVESTMENT IN OUR INFRASTRUCTURE. On its current path, the Highway Trust Fund (HTF) will be exhausted by 2021, and tax reform provides a clear opportunity to address this issue. The HTF is only liquid now because of intergovernmental transfers outside the user fee funding regime. The last time the gas tax was increased was in 1993, and inflation and changes in transportation continue to depress the purchasing power of this revenue. A lack of certainty about infrastructure funding impedes all stakeholders from making long-term investment, and has resulted in the deteriorating state of American roads, bridges and transit systems.
Additionally, infrastructure investment creates jobs and leads to new investments, and has a strong spillover effect into other industries and local economies. Studies from the U.S. Treasury, the Federal Reserve, and both liberal and conservative economists have all indicated that the net, direct economic benefits from expenditures on capital projects well exceed their costs, and include substantial private sector gains. As such, we must make critical changes to invest in our nation’s infrastructure. We can do so by enacting changes to user fees, broadening the current air cargo tax to trucking services, or by allocating one-time revenue from repatriation policies, in addition to other revenue sources.
We should use tax reform as an opportunity to address funding challenges for the Highway Trust Fund and infrastructure investment.
OTHER POSTS ON THE BLUE DOG VISION FOR TAX REFORM: