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Policy Update: Tax Reform

These days, Congress doesn't agree on much.  But there is bipartisan support in Washington for comprehensive tax reform.

In May, the House passed a budget resolution that set forth our vision for reform.  It called for consolidating the six individual income tax brackets into two brackets, a 10 percent bracket and a 25 percent bracket, and lowering the corporate tax rate. 

Our tax code is a lot like our government - it's broken.  It’s nearly four million words long.  It’s riddled with lobbyist-loopholes.  It’s laced with perverse incentives.  And it’s so complicated that nearly 90 percent of all Americans must enlist the services of a professional or purchase software to complete their returns.

It shouldn't be this way, and it doesn't have to be.

It is time for Congress to evaluate the merits of each loophole, get the government out of the business of picking winners and losers, and lower rates for all Americans – including small businesses. 

More than half of all business income is taxed at individual tax rates, so by simplifying the code and by lowering rates on individuals, we will provide much-needed tax relief to small businesses.  As a result, small businesses will be able to keep and invest more of their hard-earned money, expand their businesses, create jobs, and help grow our economy.  Moreover, they won’t have to dedicate their precious time and resources to complying with the code. 

Tax reform shouldn't be limited to the individual side of the tax code.  It should also address the corporate tax rate. 

The corporate tax rate in the United States is 35 percent, the highest in the world.  But the effective tax rate – or the tax rate companies actually pay – is much lower.  In fact, according to the Government Accountability Office, the average effective tax rate for companies in 2010 was 12.6 percent.  The reason for this is that companies can employ various tax strategies – all legal, I might add – to reduce or even avoid tax liability.  They can also benefit from a plethora of tax credits, deductions, and other loopholes in the code.   

Most of us can agree that the United States should not have the highest corporate tax rate in the world and that our tax code should not make it more beneficial for companies to keep their profits in foreign markets.  Instead, we should encourage companies to invest in America, create jobs in America, and grow the American economy.  We can do this if we eliminate the special-interest loopholes and lower rates.

While it will be tough, there is a real opportunity to get tax reform done.  The House Ways and Means Committee has held 20 hearings on comprehensive tax reform, and Chairman Dave Camp (R-MI) has indicated that the committee will move forward with a proposal this fall.  Chairman of the Senate Finance Committee Max Bauchus (D-MT) has also indicated his support for comprehensive tax reform.  In fact, the two chairmen have been traveling together, visiting companies across the country and listening to workers.  I look forward to working with my colleagues in the House to make it happen.      

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