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21 Dec 2007
Business leaders in the world’s biggest economy will be discussing US Treasury’s latest tax reform proposal, including the lowering of corporate income tax to 28% and introduction of a so-called business activity tax, which would act as a VAT.
The proposals are part of a tax reform set out in a study, entitled ‘Approaches to Improve the Competitiveness of the US Business Tax System for the 21st Century’ launched by Treasury Secretary Henry Paulson yesterday.
The cut to 28% would require elimination of all special preferences to make the change revenue neutral. The business activity tax, compared to a VAT, would remove interest costs from the tax base and would improve USA’s economic performance by up to 2.5%, according to Reuters.
Treasury officials admitted at a news conference the likelihood was remote of moving any legislation on the issue during the current Bush administration, but they wanted to ‘lay the groundwork for future debate on the issue’.
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Treasury's proposals miss the boat
The Treasury proposals fail to adequately address the flaw in our current system that drives high-quality jobs abroad. Territorial taxation could actually increase the incentive to export jobs. Replacing the corporate income tax with a VAT equivalent would shift the tax burden to American consumers, a change that is not necessary to solve the problems.
The Shared Economic Growth dividends paid deduction proposal solves these problems in a simple way. Under this plan, corporations could take a deduction for dividends paid to their shareholders, but only if and when they actually pay them.
This would allow corporations to eliminate tax on their US operations, making this country the best place in the world to locate their operations, from a tax point of view. And the kind of high-tech, high-value operations that produce quality jobs are very tax-sensitive. Further, the plan is revenue neutral.
The surprising thing is how little it would actually cost to make the US the most attractive place on earth to put high-value jobs.
It is tragic that neither Treasury nor Congress has been willing to discuss the one viable proposal that pulls quality jobs back home: the dividends paid deduction.
SharedEconomicGrowth.org is dedicated to educating the American public about dangerous trends in the US economy and viable options for addressing them.
Posted by: Matt Lykken, 21 Dec 2007 | 00:00