One of the top Republican cheerleaders for tax cuts kicked off his party’s effort Tuesday to overhaul a U.S. tax code long been criticized by both parties as out of date and harmful to economic growth but which has been impervious to prior attempts at reform.
Rep. Paul Ryan, speaker of the House and his party’s 2012 vice presidential candidate, laid down a series of markers that should guide what he called a “once in a generation” chance to reshape the tax code.
• Make tax cuts permanent, unlike the Bush-era tax cuts that expired after a decade.
• Lower tax rates for individuals and businesses and end many special-interest exemptions to offset the loss of federal revenue.
• Reduce tax rates for corporations steeply enough to stop U.S. companies from leaving and to encourage foreign companies to relocate to America.
• Switch to a “territorial” tax system that makes U.S. companies more competitive with foreign rivals.
• Eliminate the inheritance tax and alternative minimum tax.
“We are going to cut taxes. But if we are going to truly fix our tax code, we have to fixe all of it — both for individuals and businesses,” Ryan said in a speech before the National Association of Manufacturers. “Why? Because this will create jobs. That is what this is all about: jobs, jobs, jobs.”
Republicans face a big fight, even though they control the White House and both chambers of Congress. Democrats have very different ideas on how to reform the tax code and they are likely to resist any bill that raises the deficit or cuts taxes for the wealthy, especially in a Senate where they have more power to block legislation despite their minority status.
The Republican effort to reshape the tax code could also face resistance from anti-deficit budget hawks in the conservative ranks as well as business lobbyists whose industries would lose more than they gain from the end of certain tax breaks.
Prior efforts to alter the tax code have repeatedly faltered in Washington since the landmark 1986 reform more than 30 years ago.
One of the biggest flaws in the U.S. tax code, both parties generally agree, is a global taxation approach that makes America’s companies less competitive. U.S. businesses are taxed on what they earn both at home and abroad (after a partial exemption). Most other countries only tax what companies earn in that country, leaving them with an overall lower tax burden.
The current approach has encouraged large American companies to collectively stash up to several trillion dollars offshore to keep their own taxes down — money that could be put to work in the U.S. economy if the tax code were friendlier, conservatives argue. In some cases, such as that of Burger King, companies have relocated their headquarters outside the U.S. to reduce their tax rates, a controversial tactic known as an inversion.
“Today U.S. companies are leaving to become foreign companies,” Ryan argued. “It should be the other way around. We want foreign companies to become U.S. companies.”
Ryan did not mention a controversial border-adjustment tax in his speech that would tax imports but not exports.
Joining Ryan on Tuesday in calling for reform were Gary Cohn, director of President Trump’s National Economic Council, and Steve Mnuchin, the Treasury secretary. Mnuchin said in an interview on CNBC that “massive tax reform” is his “No. 1 priority” this year. Cohn said he was pushing for a bill to be introduced by September.
Before Republicans can pass the sort of tax overhaul Ryan and the Trump White House envisions, they have to pass a replacement for Obamacare. Failing to tackle that matter first would limit how much Republicans can cut taxes by as much as a trillion dollars, Ryan acknowledged.
The House has passed one health-care bill, but the Senate has yet to act amid swirling controversy over what its plan will look like.
Ryan was adamant tax reform will pass soon. “We are going to get this done in 2017,” he insisted.