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Is tax reform more doable than health care?

From the pages of In Business magazine.

Just what was the justification for electing a Republican majority in Congress? After seven years of railing against the Affordable Care Act, and just a few months after assuring voters they were unified on a plan to repeal and replace the ACA (aka Obamacare), House Republicans whiffed so badly that they now face the very real prospect of losing their Congressional majority. If this keeps up — another attempt is being made — the American public will conclude the GOP is incapable of governing.

After their disgraceful performance on health care, one is left wondering whether former President Obama has secretly built members of the dissenting GOP “Freedom Caucus” in a laboratory because if they didn’t exist, he’d surely have to invent them. One is also left to wonder whether another comprehensive bill, this time on tax reform, is any more possible than comprehensive health reform or comprehensive immigration reform or any big-ticket legislation.

Given the recent history I tend to doubt it, so here’s a modest suggestion. Since the top personal income tax rate is really not at historic highs — it was higher during the go-go years of the 1990s and did not undermine a strong economy — focus on reducing our comparatively high corporate tax rates. Ideally, Congress would also simplify the tax code as much as possible, but since walking and chewing gum is an issue in D.C., perhaps we’d better lower our sights and take one bite out of the mountain at a time.

With a renegade faction in his own party, President Trump is reaching out to Democrats. I’m not sure how many Democrats are persuadable on bringing down the corporate rate, but the current 35% federal income tax rate incentivizes American companies to hold billions of dollars in profits overseas rather than bring that money home to spark domestic growth.

There is also a “little guy” argument. Companies of all sizes have high tax rates, and that burden is passed onto consumers as part of the cost of production. All taxes considered, the federal tax rate on successful small businesses is estimated to be 44.6%, compared to a 26% corporate rate for Canada when central, provincial, and other tax rates are combined. That makes no sense from a competitive standpoint, unless your vantage point is north of the border.

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