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Tax Reform Status (Quo?)

Tax Reform Status (Quo?)

| October 18, 2017

Does it seem to you that the news out of Washington, D.C. gets bleaker by the day?  Inquiring minds marvel at the dysfunction from those we elected,  especially in Congress,  and wonder if they will ever get anything accomplished.  Having failed twice on healthcare, Congress has turned its attention to tax reform.  Based on their body of work so far, this should be interesting!

But seriously folks, tax reform is important.  So, let me set aside my cynicism and delve into some of the issues involved with tax reform.  For starters, please click on the following link to a video on our website: Is Tax Reform on the Agenda?

The major theme of the Tax Reform Act of 1986 was to lower marginal rates on corporate and household income while broadening the tax base.  As stated by Glenn Hubbard in the Wall Street Journal, "The principal goal of tax reform is to promote economic well-being – investment, productivity and wages – and debate should center on improvement in well-being."

One important economic shift is that the competition for corporate capital has intensified dramatically on a global basis.  In this regard the United States is at a competitive disadvantage as our top corporate tax rate is considerably higher than those of other developed countries - 35% versus the OECD average of less than 25%.

Last week, the Congressional Budget Office reported that the budget deficit for fiscal year 2017 grew for the second straight year to $668 billion, an increase of $82 billion over the previous year.  Overall spending increased only 3% over the previous year; the main reason for the increase in the deficit was a mere 1% increase in federal revenues.

A typical economic expansion would be on the order of 3% of additional revenue as wages and profits rise.  In the 80's and 90's, increases of 5% or more were common.  In my opinion, the federal budget will never be balanced without faster economic growth.

I am not sure what Congress can accomplish given the current environment, but tax reform clearly is needed.

Until next time, cheers!