Bold changes needed for federal tax code
The American tax code does little to help Pennsylvania companies compete and win against their foreign counterparts, and does little to help us succeed and create jobs here at home. But we can change that.
Every year around this time, Pennsylvanians and Americans across the country are reminded (usually with frustration) of just how broken our tax code is.
They fill out their paperwork, fork over a couple hundred dollars to an accountant, and hold their noses as they write a check payable to the U.S. Treasury in an amount that could easily finance a much-needed family vacation or any number of other worthier causes.
It's an annual, nationwide rite of passage, and it's an unpleasant reminder that the tax policy set by elected officials in Washington has a huge impact on every single person in the United States.
Tax Day, though, is just the most tangible flashpoint in our nation's ongoing struggle against its federal tax code. And while it may sometimes be amusing to joke about the massive sums of hard-earned money we hand over to Uncle Sam each year, the truth is that the problems with our tax code are no laughing matter. And it's time we ask our elected officials to do something about it.
In addition to a burdensome and complex set of rules and policies that most Pennsylvanians cannot figure out on their own, no industrialized nation in the world has as high a corporate tax rate than the United States. When combining our state, federal, and local tax burdens, the United States clocks in at around 39 percent. The rest of our major global trading partners pay only around 25 percent, on average. That means business owners and operators in the commonwealth have that much less money in their pocket to invest – whether it's in new equipment, expanded facilities, or higher pay for their employees or even new jobs, for new employees.
But that's not our only problem. We are also one of the only countries in the world where businesses are subject to taxes both in the countries where they're doing business and in the United States, also known as a "worldwide" taxation. Most other countries use territorial taxation, which is aimed at helping domestic companies vie for and win business as they compete across borders. Under a territorial scheme, companies only pay taxes to the nation in which the commercial activity in question took place.
What exactly does this mean for American business? It means U.S.-made goods and services are subject to higher tax burdens than foreign-made goods and services, because a company doesn't have to pay an income tax to the United States on imported items – but they do pay on a product produced here at home.
This imbalance is known as the "Made in America" tax.We currently tax American exports – something that essentially zero other countries do – while companies importing goods from overseas come in for free. It creates a major tax-driven disadvantage for American manufacturers and producers, discourages "Made in America" products, and even compels businesses to invest overseas instead of here at home.
Put simply, the American tax code does little to help Pennsylvania companies compete and win against their foreign counterparts, and does little to help us succeed and create jobs here at home. But we can change that.
The House Ways and Means Committee is hard at work on a tax reform proposal that would make Tax Day a bit less miserable every year for all Americans by cutting tax rates and addressing the factors that currently make it harder for domestic companies to come out on top in the global marketplace.
The plan would shift us to territorial taxation and would implement border adjustability in the interest of shifting the current tax structure so that it stops favoring foreign imports over American products – and raise about a trillion dollars in revenue in the process. For Pennsylvania, this change will mean more jobs and money back in the pockets of families to spend in our communities. In fact, under the blueprint proposed by the House leadership, Pennsylvania will see nearly 69,000 new jobs added and an estimated $5,000 in after-tax income back to the typical Pennsylvania household.
These are bold changes – changes that can make a big difference for taxpayers across the economic spectrum. We need to fix our broken tax code, and we need to do it as quickly and efficiently as possible. And in this interest, Pennsylvania's delegation in Washington, along with President Trump, should fall in line behind the House tax reform blueprint.
Mark Schweiker, a former governor of Pennsylvania and CEO of the Greater Philadelphia Chamber of Commerce, is senior vice president and corporate development officer at bio-chemical manufacturer Renmatix, headquartered in King of Prussia. @MarkSchweiker