Reforming How Businesses Are Taxed
Below is a MRR and PLR article in category Finance -> subcategory Taxes.
Reforming Business Taxation
Summary
Tax reform often feels like an endless discussion without much action. However, incoming Treasury Secretary Henry Paulson has the opportunity to push forward corporate tax reform, which is crucial for economic growth, job creation, and reducing the budget deficit.Article
Tax reform is frequently discussed, yet rarely acted upon. With Henry Paulson stepping in as Treasury Secretary, there's a chance for significant progress in reforming corporate taxes. While individual tax rules shouldn't be ignored, modernizing business tax systems is vital. Here are four key considerations for Paulson and Congress:
1. Maintaining Competitiveness
Just as we choose where to buy cheaper gas, businesses assess taxes as a critical cost when deciding where to locate operations and hire staff. To remain globally competitive, the U.S. must adapt its tax system.
2. Significance of Tax Rates
Tax rates play a crucial role in competition. Despite reduced individual rates, corporate rates have stayed unchanged since the 1990s. Meanwhile, Europe has embraced lower tax rates, which have resulted in increased revenues. Research by economist Martin Sullivan and the American Enterprise Institute shows a link between reduced corporate rates and higher wages. The U.S. could experience similar benefits.
3. Importance of the Tax Base
Revenue from taxes depends on both rate and base. While incentives for research and education are supported, there's a growing consensus favoring lower rates and a broader tax base. This approach simplifies tax administration and reduces government bias in favoring certain industries.
4. Combatting Complexity
Simplifying the tax system through rate reductions makes compliance easier. Complexity serves as a hidden tax burden. In 2005, the Tax Foundation reported that taxpayers spent $265 billion complying with federal income tax laws, with businesses bearing 55% of that cost.
It is essential to pursue corporate tax reform to stimulate growth, create jobs, and address trade and budget deficits.
Michael P. Boyle is the President of the Tax Executives Institute, an organization comprising over 6,000 corporate tax professionals.
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