Other Voices

Cut business taxes to boost the economy

Walgreen Co. recently bucked the trend of companies fleeing U.S. borders through tax inversions, a paperwork version of moving their corporate headquarters overseas.

Threats that the Obama administration will make life difficult for companies attempting to move overseas seem to be paying off — if the goal is to increase revenue for the federal government.

However, if the goal is to grow jobs and heal the moribund American economy, there is a better way.

Texas has proven that lower taxes and less regulation — along with a solid civil justice system — provide the only way to reliably increase jobs and keep the economy going strong.

To this end, cutting corporate taxes should be a top priority in both Washington, D.C., and in Austin.

It is interesting that the push for cutting business taxes is at least as strong in Austin as it is in Washington.

After all, Texas seems to be doing pretty well in this area; those businesses that are not heading overseas to avoid high U.S. corporate taxes appear to be moving to Texas in droves.

Yet a recent study by the Tax Foundation shows how the Texas economy would benefit from lower business taxes. If it eliminated the state “margin” tax, Texas would jump from 10th to third in the Tax Foundation’s State Business Tax Climate Index.

The benefit would not merely accrue to businesses, however. Returning almost $5 billion a year to the Texas economy would have a tremendous positive influence on job creation and economic growth.

In addition, an often overlooked aspect of this would be that Texas government would have a lot less money to spend every year — which means that it would be less able to impose harmful restrictions on market activity and less likely to interfere with individuals’ health care decisions.

In other words, Texans would experience more jobs and freedom by eliminating the margin tax.

Similarly, reducing the U.S. corporate income tax rate would bring dual benefits to all Americans.

Yet the focus in Washington at the moment seems to be to make sure that the tax “cuts” are “paid for” by eliminating tax breaks or through other means.

Of course, eliminating tax breaks and simplifying the tax code is an admirable idea; the complexity of the tax structure adds billions of dollars compliance costs each year.

However, the ultimate goal of tax policy in Washington should be to cut taxes. Clearly, that is not the goal at the moment.

Walgreen could have saved as much as $4 billion over the next five years by moving its headquarters overseas, money that could have been used to increase pay to employees and create new jobs.

Yet rather than understand the economic harm being done by current U.S. tax policy, Washington seems focused on the harm being done to U.S. government revenue streams.

So just as has been the case with individuals who try to leave the U.S. to reduce their tax burden, businesses moving overseas are seen as bad actors that deserve punishment.

The unfortunate truth is that the United States has long since ceased being the most attractive country to do business in.

According to the 2014 Index of Economic Freedom, the U.S. ranks only 12th, behind countries like Australia and Canada, with the United Kingdom only two slots behind.

We’ll need to do much more than cut corporate taxes to make up this deficit, such as repealing Sarbanes-Oxley accounting regulations and Obamacare.

But first things first. Congress should cut the corporate tax rate in order to reduce the tax burden on businesses — along with the burden on the employees and customers.

Similarly, Texas should eliminate its margin tax and return its revenue stream to hard-working Texans.

The combination of these two policies would go a long way toward curing what ails the struggling American economy.

Bill Peacock is the vice president for research and director of the Center for Economic Freedom at the Texas Public Policy Foundation, a non-profit, free-market research institute based in Austin. bpeacock@texaspolicy.com

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