Technology Leaders Say Tax Reform is Key To Boosting U.S. Economy

Comprehensive tax reform is one of the most important things Congress can do to improve the U.S. economy, according to a new report out today from the Information Technology and Innovation Foundation (ITIF), yet legislative progress has been scant. ITIF, a leading U.S. science and technology policy think tank, details the case for tax reform and provides a comprehensive review of leading proposals and the political prospects for reform in the next Congress.

“Sensible tax reform will improve the nation’s fiscal balance, increase competitiveness, and spur investment,” said ITIF Senior Fellow Joe Kennedy, the report’s author. “Yet despite clear economic evidence on the need for reform, progress has been hard to achieve. The presidential campaign may even have made the prospects worse, because neither candidate is proposing a plan that is remotely capable of passing the next Congress. Without a determined push by the next president, tax reform is unlikely to happen for many years, denying Americans a much-needed increase in productivity and living standards.”

The report reviews the academic evidence supporting the need for tax reform, including studies that have found falling corporate tax rates in other countries are hurting U.S. economic performance and that if the United States had lowered its corporate tax rate over the past 10 years, it would have captured billions of dollars’ worth of new assets.

The analysis goes on to summarize some of the main political issues that policymakers still need to resolve, including the scope of reform. Kennedy argues that while ideal tax reform would address both individual and corporate taxes—ideally raising the former and reducing the latter—policymakers must balance what is desirable with what is feasible. He also points to alternative proposals, such as focusing solely on international taxation, implementing an “innovation box” to lower taxes on innovative activities, and integrating corporate and individual taxes to reduce double taxation of corporate income.

Kennedy concludes by examining the prospects for reform in the next Congress. Lawmakers slightly brightened the political prospects for reform late last year by building into the budget baseline a large number of semipermanent tax provisions, but the Obama administration insists that any reform bill include the cost of these changes, thus making reform even more difficult. Kennedy says the next administration should be willing to start fresh, but that currently neither major-party candidate is offering a politically palatable proposal.

“There are issues where there is broad agreement, such as the need to fix the taxation of foreign income, but they are being held hostage to a broader deal,” said Kennedy. “Still, there is always hope. A great deal of progress has been made in educating members about the issues, and a number of attractive proposals have been put forward. Bipartisan consensus is emerging in some areas. If the next president is pragmatic and willing to engage in the difficult negotiations needed to write and pass major tax legislation, then perhaps something will get done in 2017. If not, then the country will have missed another opportunity to choose a better future.”