Partisan rancor set back bipartisan efforts to reform the U.S. tax system this year, but activists are holding out hope that the incoming Republican Congress and President Obama can agree on ways to provide some relief to American businesses and bring greater clarity to the system for everyone.
Retiring House Ways and Means Committee Chairman Rep. Dave Camp, R-Michigan, had been cobbling together legislation to spark tax reform but Republicans say President Obama’s unilateral immigration actions further eroded their trust in him to negotiate in good faith or enforce anything Congress approves.
Despite the friction between Obama and the GOP, Pete Sepp believes a golden opportunity still exists to get this done. Sepp is the president of the National Taxpayers Union, a nonpartisan citizen group founded in 1969 to work for lower taxes and limited government.
“There’s still a fair amount of hope. I think that’s because most lawmakers, both Democratic and Republican, recognize that this tax system, especially on the corporate side, is becoming so complex that it’s going to collapse under it’s own weight,” said Sepp, who believes sweeping changes could even be possible.
“Tax reform, whether it’s on a massive scale, like completely scrapping the code, or doing something like a comprehensive overhaul is on the table no matter what,” he said.
If anything substantive happens on tax reform in the coming months, it will likely be based on the course charted by incoming Ways and Means Committee Chairman Paul Ryan, R-Wisconsin.
“He has said that he wants to review the way that tax reform is scored by the Joint Committee on Taxation,” said Sepp, noting the projections for revenue from the Joint Committee on Taxation are the numbers which guide many fiscal decisions in Congress.
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If there are changes in how reform is scored, Sepp believes that would create significant momentum to fix the system.
“If he can convince his fellow members of Congress that we need to take into account the dynamic economic effects of tax reform in those revenue scores, I think we’ll have a lot easier task in simplifying as well as lowering the rate,” said Sepp.
Sepp also believes the Senate Finance Committee has a chance to make progress as well, citing a solid working relationship between incoming chairman Sen. Orrin Hatch, R-Utah, and the ranking Democrat Sen. Ron Wyden, D-Oregon.
However, the window of opportunity may not be open for very long.
With politicians and the press likely to be focused on the presidential campaign before the end of 2015, Sepp says it’s imperative for the new Congress to jump on this right away.
“If we don’t see packages reported out of the House and Senate tax writing committees by the spring, we’re going to be in trouble,” he said.
Sepp says the good news is that lawmakers don’t have to start from scratch. He says the bill worked on by Camp is a good starting point, while it does contain some provisions he’s not excited about and would like to see changed or removed.
Even if Congress can agree on major reforms, Sepp says Obama could still be a wildcard and a potential deal-killer in this process.
“The devil will be in the details though, especially as the president unfortunately cranks up his rhetoric about big oil and wanting to take away what he perceives to be tax breaks or subsidies that really aren’t there,” said Sepp.
As for his top priorities for reform, Sepp says corporate taxes have to be at the top of the list. It’s an issue that Democrats and Republicans have appeared to be in agreement about in the past.
“We’re seeing a gradual recognition that the U.S.’s top income-tax rate for businesses is simply uncompetitive compared to the rest of the world. The average among so-called OECD (Organization for Economic Co-Operation and Development) countries, our closest competitors, is about 25 percent. Here in the United States, the combined state and federal rate is about 39 percent. That is highly unattractive for businesses to either stay here or relocate here,” said Sepp.
Beyond that, Sepp is pushing hard for far more clarity in the tax code.
“If we’re not going to completely scrap the code in favor of a flat tax or a national consumption tax, then we need to have mechanisms built in to the tax system that will encourage simplification on a regular basis. We should have a four-year, automatic simplification process, where the public and private sectors get together, exchange ideas and pass into laws ways to keep streamlining the tax code. That way, the complexity won’t build up over time,” said Sepp.
Also high on Sepp’s agenda is scrapping what he considers needless and burdensome taxes.
“We also need to look at the way we treat investment. It is still problematic. We need to get rid of entire categories of taxes, like the Death Tax. So there’s still plenty of work to do here,” he said.