OPINION:
The real job killer in America today is the tax system. The American economy, the greatest wealth-generating engine the world has ever known, is being hindered by a tax system that is stifling productivity and hampering job growth. Burdened by growing debt and deficits, the United States can no longer avoid implementing the fundamental tax reforms the country needs to spark economic growth.
As long as spending in America continues to outpace productivity, debt and poverty will continue to rise. But a nation’s productivity can be stimulated with the right tax system.
The tax system, more than any other economic lever, has the greatest bearing on the creation of wealth and jobs. The present tax system is complicated, vague and difficult to understand. It has become a drag on economic growth and a drain on national expenditures, requiring a huge bureaucracy to administer and oversee the growing tangle of tax legislation.
Furthermore, the tax system does not provide financial incentives to invest here in America. On the contrary, America’s tax system destroys jobs. It allows American companies to reap greater financial rewards by laying off U.S. workers and outsourcing production to foreign countries that have lower social, safety and environmental standards than the United States.
Over the past 50 years, I have built my small tool shop into the world’s most diversified automotive parts manufacturer, creating more than 100,000 jobs at more than 350 manufacturing and research and development facilities in 26 countries. And in the last few years, I have become increasingly alarmed at the rapid deterioration of America’s manufacturing base.
The economic well-being of any country can be easily measured: A country that imports more and more and exports less and less will inevitably see a decline in its living standards and a deterioration of its economic fabric. Just walk down the aisles of any major department store in the United States and you will find very few products that are still made in America. The fact is greater imports and lower exports mean fewer jobs for Americans. If there are fewer jobs, social costs will climb and the tax base will erode, leading to greater poverty.
There is a solution to reverse this trend. America needs a streamlined tax system, one that is clearly understood by every citizen. This revamped tax system should be simple, straightforward and clear-cut, with no loopholes. A simple, flat-rate tax system would unshackle individuals and businesses from the enormous waste of time and energy spent complying with tax filings or preparing for audits.
To begin with, I believe that all corporations and businesses should pay a flat tax on their net income. American-based corporations that invest their profits in foreign countries would pay the full flat tax rate. However, businesses that invest a portion or all of their net profit in the United States would be exempt from paying any tax whatsoever on the amount invested - a reward for creating jobs here in America. In addition, a revamped tax system should recognize that a successful business requires three forces to create wealth: good management, hard-working employees and investors, and all three stakeholders with a moral right to the financial outcome. From my experience, sharing profits with employees is a proven and powerful formula for growth. When workers have a tangible stake in the company’s financial success, they are more motivated to produce a better product for a better price. As a result, I believe that businesses that share a minimum 10 percent of their profits with their employees should pay a lower flat tax rate.
Finally, in terms of personal tax reform, I believe that individuals should pay a flat tax on all income earned, including dividends, as well as a consumption tax on the purchase of goods and services. The common feature for all of the tax reforms outlined here is that they are simple, black-and-white, and geared toward creating jobs and wealth.
Revamping the U.S. tax system along these lines - together with reduced government spending - would unleash an economic boom the country hasn’t experienced since the end of World War II. It would put millions of Americans back to work, allowing the country to eventually eliminate its deficit and begin paying down the national debt. Most importantly, it would create the conditions necessary for enhanced productivity and wealth creation - the real solution to America’s economic malaise.
Frank Stronach is the founder of Magna International.
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