TDEP-02 Policy on Comprehensive Tax Reform2.0. Comprehensive Tax Reform
The NAM believes that our current tax system is antiquated, fundamentally flawed and discourages economic growth and U.S. competitiveness. We support efforts to make the tax code more pro-growth, pro-competitive, fairer, simpler and predictable. Because of the critical importance of manufacturing to our nation's economy, any effort to rewrite the federal tax code should result in a fiscally responsible plan that allows manufacturers in the United States to prosper, grow and create jobs. In addition to the tax policy positions outlined in Section 1.0 Principles of Tax Policy, the NAM offers the following policy guidelines for comprehensive tax reform:
• Encourage Investment and Job Creation. A tax reform plan should create a tax climate that encourages capital investment and job creation.
- Lower Corporate Tax Rate: Reducing the corporate tax rate to 25 percent or lower would make the United States’ tax system more competitive with our major trading partners. Any accompanying base broadening should recognize the impact of those changes on economic growth. Some current tax incentives are key to a strong manufacturing sector and broader economic growth and the benefits of these provisions should be maintained in a new system.
- Lower Taxes for Flow-Through Businesses: Almost 70 percent of manufacturers are organized as “flow-through” entities and pay taxes at individual rates. For these entities, it is critical that the tax rates on individuals be as low as possible. A new system should not increase the tax burden on these businesses to pay for other tax reform measures.
- Permanent R&D Incentives: It is critical that any tax reform plan recognize the important role of research and technology investment in the growth of U.S. jobs and innovation. The goal is for the United States to retain and attract global R&D activities. The certainty provided by a strengthened, permanent R&D provision would enhance its incentive value.
- Taxation of Investment: Keeping the tax rate on dividends and capital gains as low as possible and applying the same rate to all investment income will help public companies attract investors and allow them to finance investment and create jobs. An effective way to spur business investment and make the tax system more competitive is through a robust capital cost recovery.
• Promote International Competitiveness. Current U.S. tax laws make it difficult for U.S. companies with worldwide operations to thrive and compete in the global marketplace. If U.S. companies cannot compete abroad, where 95 percent of the world’s consumers are located, the U.S. economy suffers from the loss of both foreign markets and domestic jobs that support foreign operations. In order to make U.S. multinationals more competitive, the NAM supports lower corporate tax rates, a permanent R&D incentive (see above) and the adoption of a competitive territorial tax system.
- Elimination of the Double Tax Burden: A U.S. territorial system should be based on the principle that there should be no double tax burden imposed by the United States. At a minimum, a new system should exempt active foreign earnings from taxation and avoid the imposition of a stealth tax on foreign earnings through expense allocations.
- Alignment with international norms: A U.S. territorial system should be structured to enhance U.S. competitiveness, not raise revenue. Moving to a territorial system like those used by other industrialized countries will allow U.S.-based companies to be more competitive.
- A smooth and effective transition: A move to a territorial tax system should include fair transition rules that allow repatriation of foreign-earnings on a voluntary basis, minimize administrative and compliance costs on companies and allow existing foreign business entities to compete with foreign-headquartered companies.
• Ensure a Simpler, Fairer and Balanced System. A new tax system should be simpler and more administrable and should treat all businesses fairly without regard to size, type of entity or sector.
- No Net Increase in Manufacturers’ Tax Burden: Any alternative that shifts more of the current tax burden on to manufacturers will hamper economic growth and job creation.
- Elimination of the Alternative Minimum Tax: A new system should eliminate both the individual and corporate alternative minimum tax rules, which are inherently complex and unfair.
- Administerability: A new system should incorporate rules that make it easier for Treasury to administer the law and for taxpayers to comply with the law. Unnecessary complexity is not productive from an economic perspective and undermines taxpayers' confidence in the fairness of the law.
- Predictability: A tax code that is predictable and that provides certainty is essential for effective business and tax planning. A fair and stable tax code will make it easier for U.S. manufacturers to complete in the global marketplace.
- Transition Rules: A new system must include broad transition rules that provide fair and equitable treatment for taxpayers that have generated substantial attributes based on current law. For example, it is important for transition rules to allow future timely utilization of tax attributes, e.g., net operating losses, alternative minimum tax credits, foreign tax credits, depreciation etc., that have been generated but not yet utilized under the current system.
Adopted Winter 2012 Effective until Winter 2016