OPINION:
Since I came to Washington 100 days ago, I’ve worked to reduce spending. Nothing is more important right now. If, however, we are to accomplish our central goal of creating jobs, it’s time to reform our corporate tax system, so that American companies can compete - both on our shores and abroad.
At a whopping 35 percent, the United States currently imposes the second highest corporate tax rate in the industrialized world. When you add in state taxes, businesses pay a staggering 40 percent in taxes.
The problem is magnified for companies doing business abroad, which, in addition to local taxes, must pay U.S. taxes when they bring the money home. For this reason, U.S. companies are sitting on a trillion dollars overseas.
These policies mean that U.S. companies are at a distinct disadvantage, whether they do business at home or abroad. With such punitive policies, how can we expect companies to locate to our shores? How can we expect to lower unemployment?
That’s why, last month I introduced a bill - H.R. 937 - that lowers corporate tax rates to 23 percent - well below the industrialized average of 25.9 percent - and allow permanent repatriation of overseas profits; $1 trillion that can be used for investment and job creation.
My bill is just a start. The goal is to move toward a territorial system of taxation so that U.S. companies do not have perverse incentives to keep their money overseas. And because most businesses are arranged as pass-through entities, we must lower individual tax rates as well.
There will be those, including President Obama, who say that the United States cannot afford to lose the revenue gained from high corporate tax rates. In a speech last week, he talked about increasing taxes on high-income earners. I cannot think of a worse thing to do right now than to raise taxes on the very people we are expecting to hire more workers. We can ask businesses to either hire more people or pay higher taxes - we cannot expect them to do both.
Research done by the American Enterprise Institute and others shows that reducing our corporate tax rates will lead to a boom in investment and tax revenues - illustrated by a Laffer curve - that will far outweigh the reduced revenues. This has been proven time and again.
Furthermore, it will not lead to deficits. Government spending does that. Ronald Reagan said that the tax isn’t the tax, spending is the tax. He also said that government always finds a need for the money it collects. Amen. For what it’s worth, the Reagan tax cuts increased income tax revenue - which had been shrinking - by a robust 3.5 percent.
Our Congress has begun to cut spending and must continue to do so. The current administration is making financial promises in every direction - promises that, in total, cannot possibly be kept. And it’s wrong. Not only does it damage the economy’s ability to recover, but it also jeopardizes more fundamental promises - to our seniors, our veterans, our allies and our business partners.
Yes, we must stop the spending. We must complement these cuts with corporate tax reform, which will set the stage for a rising tide for all Americans.
A strong economy makes everything else possible. What will make a strong economy are low tax rates for businesses so that they can compete globally, hire more Americans, grow their businesses and reinvest. There has never been a country on the face of the earth that has taxed its way to prosperity. And America will not be the first.
Rep. Tim Scott is a Republican from South Carolina.
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