The Washington tax policy groupthink says that the optimal reform is to purge the federal corporate tax code of the myriad credits and deductions and then use the resulting savings to lower the rate. But this groupthink is based not on evidence, but on ideology. In fact, the dogged faith in simplicity will trump efforts to reshape the code as a driver of innovation and U.S. competitiveness, and it will result in less, not more, growth and jobs. Instead, the tax code should focus on expanding exemptions and incentives that spur innovation and growth-enhancing activities like R&D and investments in new machinery and equipment, while eliminating ineffective ones.
Time for Washington to Think Like a State
For too long the conventional wisdom in Washington has held that the United States is not in competition with other nations. The neoclassical economists that dominate the debate argue that corporate tax policy reform should simply “level the playing field” and then suddenly the U.S. will thrive in the global economy. Yet the approach to tax policy would actually make our competitiveness worse. The states understand this; Washington does not. The economic policies of states are based upon the fact that a competitive corporate tax rate, particularly on “traded firms” is essential. Maybe it is time to send the DC economists for one-year stints in state government to see how the real world works.
17 is Not Enough: The Case for a More Robust R&D Tax Credit
President Obama’s call to increase the R&D tax credit from 14 to 17 percent is an important first step in restoring America’s global innovation-based competitiveness. But if our nation is to really address the challenge—the “Sputnik moment” in the President’s words—17 percent is not enough. Increasing the Alternative Simplified Credit (ASC) from 14 to 17 percent will move the United States from 17th place amongst OECD nations to 13th—an improvement to be sure—but one that will leave the United States far behind the global frontrunners in terms of R&D tax incentives. We urge Congress to take up the President’s call to expand the credit, but expand it to at least 20 percent, as some in Congress have proposed.
President Obama’s Accelerated Depreciation Proposal Will Boost Economic Growth
President Obama recently proposed letting companies (big and small) expense 100 percent of the cost of their equipment purchases made late this year and in 2011. It’s a good idea. It would be an even better idea if the expensing were permanent. Given the slow growth of capital equipment investment by U.S. companies, particularly manufacturers, in the last decade, the non-competitiveness of the U.S. corporate tax code, and the dramatic decline in U.S. manufacturing output and jobs (and corresponding chronic and enormous trade deficits), you’d think that both sides of the aisle would jump on this...