America has not overhauled its tax code system since 1986. Changing the tax code is challenging due to the complex impacts it can have on both our personal finances and businesses. While tax reform …
America has not overhauled its tax code system since 1986. Changing the tax code is challenging due to the complex impacts it can have on both our personal finances and businesses. While tax reform is not easy, the House last month took on this challenge and passed H.R. 1, the “Tax Cuts and Jobs Act.” HR 1 will reform, simplify and modernize our current tax system. I believe such tax reform is a must to grow our economy, create more jobs and raise wages.
For me, the process started with two simple questions: What would tax reform mean for Colorado and for our families? What effect would it have on our country? The answer is twofold. I strongly believe that any tax reform must first provide incentives for small businesses, which are the engine that drives economic growth in the United States, and second, it must provide tax relief for hard-working Americans and their families.
As a former small business owner myself, I understand the hurdles small businesses face and the challenges many go through just to keep their doors open.
One of the biggest challenges facing them is the onerously high income tax rates small business owners pay when they become successful. Under the current tax system, most small business owners “pass through” the profits of their business as personal taxable income. If the business is successful, those small business profits can be taxed at the highest individual marginal tax rate, which is 39.6 percent. Capping these small business rates at 25 percent (the lowest since 1931) will give small business owners an incentive to continue to grow their businesses.
For the hard-working middle class, the bill that cleared the House calls for the doubling of the standard deduction to $12,000 per individual and to $24,000 per married couple. This means far fewer people will need to itemize to file their taxes, saving them both time and money. It also includes an additional $600 in child care tax credit, bringing the total to $1,600 per child. This increase in the credit will help relieve some of the financial pressure on working parents.
The legislation will also help middle-class families by bringing back the jobs lost to other countries when U.S. corporations have moved overseas due to our nation’s corporate tax system. Our corporate tax code pushes business overseas through a combination of two factors. The first is that, at 35 percent, our corporate rate is now the highest in the industrialized world, and secondly, we are unique among our international competitors who don’t tax overseas profits when they re-enter their country. U.S.-based companies today pay taxes to both the host country and to the IRS when bringing their profits back to invest in our economy — at a 35 percent rate. The net result is that U.S. corporations not only have been incorporating in other countries, but those that are still U.S.-based are keeping their profits overseas. In both cases these businesses reinvest their profits overseas instead of bringing profits back to help build a stronger U.S. economy. Corporate profits aren’t just about benefiting the wealthy; middle-class families rely on these publicly traded corporations for their tax-deferred retirement savings (i.e., 401K) as well as defined benefit pension funds like PERA.
No doubt, according to the nonpartisan Congressional Budget Office (CBO), this legislation, without factoring in any economic growth, is projected to add $1.5 trillion to the debt over the next 10 years. However, the same CBO has stated that each 0.4 percent in economic growth will generate $1 trillion in tax revenues to the federal government over that same time period. The economy has already moved from 2 percent to over 3 percent growth due to a reduction in regulatory burdens and in anticipation of tax reform. With tax reform, I believe we can have sustained economic growth that will not only help pay down the debt but provide increased opportunities for American small businesses, workers and their families in Colorado and in communities all across America.
The time to strengthen our community and its economy with a fair and simpler tax code is now.
U.S. Rep. Mike Coffman, R-Aurora, represents Colorado’s 6th Congressional District, which includes Aurora, Centennial, Littleton and Highlands Ranch, among other areas.