Among the many lessons our current leadership should learn from Ronald Reagan’s effective governance are his initiatives to revitalize the American economy. Most relevant today is remembering President Reagan’s tax cuts and corporate tax reform of 1986 enacted with bipartisan support that produced sustained economic growth. After nine years of anemic economic growth, it is past time for Washington to establish a small-business-friendly environment through pro-growth tax reform. A new, simplified tax code and a lower corporate rate will put money back into the pockets of small-business owners and give our economy the competitive kick-start it desperately needs.
Small businesses are America’s job creators. According to a recent study conducted by the National Federation of Independent Business, these firms create two out of three net new jobs and produce nearly half of United States’ gross domestic product. However, small-business owners also reported that five out of the top 10 problems they face are related to taxes, specifically citing complexity and high rates as major impediments to growth. Our tax code does not encourage growth, it makes businesses in the United States less competitive than their foreign competitors.
Many small businesses’ income is taxed at their owners’ individual marginal rates; thus, when the top rate went up to 39.6 percent from 35 percent in early 2013, many small-business owners saw their tax rates increase. When taking into account local and state taxes, many small businesses today are paying upward of 44 percent in income taxes.
We need to repair our broken system to accelerate economic growth by implementing a transparent, simple tax code designed to benefit working families and businesses of all sizes. Setting a globally competitive tax rate will put money back into the pockets of job-creating businesses, enabling them to put resources toward hiring and growth. Lowering the tax rate directly translates into job creation, because it will allow companies to reinvest in their own business, thus expand and create good-paying jobs.
Inaction on modernizing our nation’s tax code is no longer an option. By standing still, we are falling further behind as a nation while other countries take a competitive advantage over us by attracting investment and growing their tax base. While this realization has finally led to broad agreement that comprehensive tax reform is an economic imperative, it is still not yet a reality. Policymakers must be committed to enacting pro-growth, pro-competitive, pro-manufacturing comprehensive business tax reform, and that effort must begin as soon as possible.
At an unreasonable 35 percent, the United States has the highest corporate tax rate in the industrialized world. President Trump has called for a 15 percent corporate tax rate, well below the global average 25 percent because America’s tax code should be better than average. Setting a fair tax rate and territorial system will also bring back capital that has been invested abroad, helping to spur economic development. If Congress can deliver pro-growth reforms, they will give all businesses confidence to expand their companies and incentivize their continued investment in the U.S. economy.
In Virginia, small businesses are an integral part of the economy. There are more than 680,000 small businesses across the commonwealth, employing nearly half of the population. The small-business community in Virginia has the potential to drive much-needed economic growth that will allow working families to prosper. However, the disproportionate burdens placed on small businesses are a major challenge to the entrepreneurial spirit of Virginia’s small-business owners. Smaller firms also grapple with disproportionate higher costs to comply with federal regulations. A recent National Association of Manufacturers study indicated that smaller-sized manufacturers (under 50 employees) pay $34,671 per employee each year to comply with regulations. The regulatory burden, coupled with the high rates of our outdated tax code, are not the recipe for unlocking positive entrepreneurial growth in Virginia or anywhere in the United States.
President Trump has listened to those who feel they work harder today for less or are out of a job. He is put forth bold principles for tax reform that will help businesses to invest their next dollar and create their next job here in the United States. This approach will create opportunity which will lead to more jobs, better jobs and more money in our paychecks. If the president and Congress are successful in implementing these plans, it will lift more people up and empower more Americans to improve their lives.
The current tax code ignores the needs of working men and women, but these plans are a great starting point for sweeping reforms that Americans have needed for years. With the president and congressional leadership in Republican hands, manufacturers and small-business owners are reporting unprecedented levels of optimism, largely because they believe meaningful tax reform will come to fruition.
We have a once-in-a-generation opportunity to come together to create tax policies that benefit every American. We must seize this opportunity to realize our country’s full potential. We can’t afford to squander our chance to pursue bold reforms by carrying on with dawdling, dilatory “business as usual” in Washington.
• George Allen is a business consultant, a former governor and U.S. senator from Virginia, and a Reagan Ranch Presidential Scholar.
This week former Governor and U.S. Senator Allen spoke to the members of the Korean Economic Institute about the incoming Trump Presidency and the policy implications for the U.S-Asia relationships. Please see; http://www.keia.org/event/us-korea-relations-era-trump