Wonkbook: When it comes to tax reform, the GOP may be onto something

Sponsored by SEIU | By Steven Pearlstein If President Trump was surprised by how complicated health care could be, he’ll be in for a real shock when he gets around to business tax reform. Everyone agrees that the way the United States taxes business profits needs an overhaul. The current tax regime encourages companies to move operations, assets and …
 
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House Speaker Paul Ryan (R-Wis.) and other Republicans are determined to try again on corporate tax reform, which three presidents and many congresses have failed to enact. (J. Scott Applewhite/AP Photo) By Steven Pearlstein If President Trump was surprised by how complicated health care could be, he’ll be in for a real shock when he gets around to business tax reform. Everyone agrees that the way the United States taxes business profits needs an overhaul. The current tax regime encourages companies to move operations, assets and even corporate citizenship overseas, while raising less and less money every year as companies come up with ever more ingenious and ethically questionable ways to avoid it. For most big companies, the official 35 percent corporate tax rate is irrelevant. The average rate actually paid is about 24 percent, with some companies routinely paying no tax at all. So why have three presidents and countless Congresses been unable to fix it? The answer is that despite all the bellyaching by business leaders about our uncompetitive tax system, it is the business lobby itself that has stood in the way of reform. The reason is simple: To restructure the tax code while still raising the same amount of revenue, all those companies paying less than the average effective rate would have to pay more so those paying uncompetitive rates could pay less. And the low-tax companies have made it their business to prevent that from happening. Now, House Speaker Paul D. Ryan (R-Wis.) and his Ways and Means chairman, Rep. Kevin Brady (R-Tex.), are determined to try again, proposing to replace the existing business profits tax with a “destination-based cash flow tax. ” The wonky-sounding idea — long championed by economist Alan Auerbach of the University of California at Berkeley — has been kicking around in tax policy circles for more than 20 years, winning plaudits from think tanks on the right and left. Despite what you may have read, it is not part of a Republican conspiracy to eliminate taxes on capital. It is not a disguised tariff, or sales tax or value-added tax, although it would mimic their economic impact in some respects. It would not raise the price of imports by anywhere near 20 percent, nor would it bring millions of manufacturing jobs back to the United States. So what is it?

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