A failure could disrupt the positive changes to the economy
Pitney Bowes CEO: Tax Overhaul Vital To U.S., Connecticut
By MARC B. LAUTENBACH
It has been more than 30 years since the last major overhaul of the U.S. tax system under President Ronald Reagan. Reduced corporate tax rates were among the significant reforms to the tax code that many consider a cornerstone of President Reagan’s legacy. How, then, has the United States since inherited the dubious distinction of having the highest corporate tax rate among developed countries, with a tax code that is now nearly twice as voluminous as it was in 1986?
We could quibble about the how and why, but instead, we should focus on the vast opportunities for economic growth that tax reform presents today. We must overhaul and simplify our tax code again, this year, to strengthen the American economy and energize the local and national economies through investment and job creation.
Reduced tax rates and a territorial tax system would allow American companies to compete better with foreign companies, which pay tax only in the country where they earn the income, and at significantly lower corporate tax rates than American companies. High U.S. corporate income tax rates create a disincentive against local investment by encouraging businesses to shift profits outside the United States or to relocate offshore permanently.
High tax rates also encourage international businesses to shift expenses into the United States, eroding the tax base. A new territorial tax system, under which the U.S. would tax only income earned within its borders, would promote investment in the United States. American companies could invest profits from their global operations here without incurring an additional layer of tax as they do under current U.S. tax policy.
The opportunity for businesses to make these potential investments will undoubtedly have a positive impact on the Connecticut economy. Studies show that pro-growth tax reform plans that lower rates and tax income where it is earned add jobs and increase after tax income. Experts have found that one tax proposal would add an estimated 19,696 jobs in Connecticut and result in $6,341 more in after tax income for the median household in Connecticut. These are meaningful amounts and can improve the quality of life for Connecticut citizens and strengthen our economy.
More important, most of the current reform proposals would reduce rates and shift to a territorial system, creating opportunities for American companies to invest further in the United States and bolster our local economies. Connecticut’s economy has not recovered to the extent of other states’ economies. Federal tax reform can make a significant impact, but imagine what action at both the state and federal levels could mean for Connecticut citizens and businesses. If federal tax reform will create over 19,000 new jobs and more income for our fellow citizens, a state budget based on structural changes and a more efficient and effective government would be an important accelerator to growth here.
To boost the economy, effective tax reform must be good for businesses of all sizes, including small businesses, which are the engines of the U.S. economy. Today, small and closely held businesses create roughly half the jobs in the United States, but our system imposes high taxes on them. Comprehensive tax reform should address the unreasonable and complex tax burdens that put a brake on small business growth. With the help of our elected leaders, we can achieve a modern-day tax overhaul that will lift up small, medium and large U.S. businesses.
Now is the time to take action. According to the August 2017 National Federation of Independent Business monthly employment survey, small businesses increased hiring in July, and the Labor Department’s July jobs report topped job growth expectations. Failure to pass tax reform this year could disrupt this positive momentum, fueled in part by high hopes and expectations for pro-growth tax reform in 2017. We need our lawmakers to overcome partisan differences to pass a unified tax reform package.
It would be a mistake to ignore this opportunity and overlook the significant growth that tax reform presents for the United States and Connecticut.
Marc B. Lautenbach is president and CEO of Pitney Bowes in Stamford.
