Solution to Balancing the Federal Budget: Tax Reform
With Burger King having reincorporated to Canada last month and 50 other U.S. companies reincorporating abroad, our nation is on the brink of not only increasing our already skyrocketing federal deficit by losing billions in tax revenue, but also jeopardizing our already unstable job market.
Currently, the U.S. corporate tax rate, 35%, is the highest in the developed world. What can we do to make sure that businesses stay here while encouraging foreign companies to reincorporate in the U.S. so that our nation reclaims its once great status as a bastion of economic development?
The numbers guy that I am, I decided to take it on myself to solve this problem. I reviewed the 54 spreadsheets that the Office of Management and Budget released to the public. In FY2013, the U.S. collected $2.77 trillion, of which corporate taxes contributed less than 10% of all federal taxes collected. That same fiscal year, the U.S. spent $3.45 trillion, resulting in a $679 billion deficit. This shortfall was added to our already astounding debt - currently $17.7 trillion. Clearly, we need to start producing budget surpluses to eliminate our deficit and start paying down our national debt.
My three-pronged approach to reforming corporate taxation will get us closer to balancing our federal budget through growing the economy, getting people back to work, encouraging investment, closing tax credits / tax incentives and loopholes for corporations and reducing efforts of special interest groups to manipulate the tax code. The solution is to eliminate the corporate tax, mandate minimum earnings distributions of 35% and tax those dividends at 40%.
Remember the economy grows through spending. To quote Princeton economist Paul Krugman, “my spending is your income and your spending is my income.”
Interest rates will revert to their historical mean. Our nation currently pays 6% of total federal expenditures on interest payments. When interest rates rise, the amount of money we’ll need to spend on interest payments will skyrocket, further increasing our federal deficit and accumulated debt.
Another option would be implementing the Simpson-Bowles Plan or re-implement the 1986 bi-partisan package of President Ronald Reagan and Senator Bill Bradley created, which stipulated that the tax rate on earned income and capital gain should be the same. It was a good idea then and it remains a good idea now. All income, whether earned income, interest, dividends or capital gain, should be subject to the same tax rate. The maximum federal tax rate should be 28% for individuals and corporations and the alternative minimum tax should be repealed.
We must act now! Doing nothing is not an option!
Mark Dunec is a professional problem-solver running for Congress in New Jersey’s 11th Congressional District.