A right and a wrong way to reform tax policy

  • By PETER SEPP
  • Saturday, May 20, 2017 11:26am
  • Opinion

No matter who you are or what you do, tax laws affect your life every day. And no matter where elected officials are discussing those laws — in Juneau or in Washington, D.C. — Alaskans have to be on the lookout for both opportunities and pitfalls.

The reality is, that amid all the punditry and pontificating, lawmakers at both the state and federal level are charged with an immense undertaking: ensuring that our tax code is as efficient, competitive, and growth-oriented as possible.

No other issue is more important to the bottom lines of families and businesses around the nation. And few issues are as complex or politically challenging.

Difficult as it may be, lawmakers on Capitol Hill are at the start of a serious run at comprehensive tax reform. And, believe it or not, they are making real progress. The House Ways and Means Committee is promoting a robust reform measure known as the Brady Blueprint, so named after its lead author, Ways and Means Chair Kevin Brady of Texas. It’s a solid proposal that would go a long way toward fixing some of the problems that currently stand in the way of American competitiveness.

The Brady Blueprint can work because it is rooted in a clear understanding of what’s wrong with our current code, with a clear direction that fundamentally improves the American economic outlook over the long term.

It does this by, first and foremost, cutting rates significantly. If the measure is passed, American businesses, workers, and investors will no longer be subject to some of the world’s highest tax rates (and in the case of the corporate tax, the worst among industrialized nations). Meanwhile, the tax base, along with the filing process, would be dramatically simplified and our companies would no longer be double-taxed for exporting and competing abroad. Just about every American household will bring more of their earnings home to invest, and give less back to the government.

The measure is a long, long way from passage, and will have to run a gauntlet of opposition from various interests bent on maintaining the hard-earned carve-outs built into the current code. But, the Brady Blueprint should serve as a beacon of hope for taxpayers and voters nationwide: living proof that lawmakers are capable of crafting tax policy that makes our nation better.

That’s not always the case with tax and budget policy. That fact is illustrated by the wrongheaded process underway in Alaska, where policymakers are working to balance the state’s budget in a manner that puts a short-term injection of a relatively small amount of revenue ahead of the state’s long-term economic outlook.

For decades, oil and gas production have provided the lion’s share of Alaska’s state tax revenue, and a significant number of jobs. As oil prices have fallen in recent years, the industry has become less profitable and oil and gas revenues have taken a hit. That may turn around, of course, particularly following the recent massive onshore discovery in Alaska.

For now, the state faces a large budget deficit, and they’re attempting to fill that deficit by increasing taxes on the oil and gas industry.

To recap: Alaska wants to fill a budget deficit created in part by challenging economic conditions for the oil and gas industry by making them more challenging via higher taxes.

The revenue windfall for the state would not be huge: around $200 million. But the long-term impact on elements of the industry with poor cash would be, in the words of those who offered the plan, “massively significant.” This is perversely inefficient and ill-advised tax policy.

Effective tax policy drives growth and creates opportunity across all sectors. That leads to a more robust economy, which then leads to more revenue. That’s the premise underpinning the Brady Blueprint.

Policy that puts the crosshairs on one sector and prioritizes short-term infusions of money over an improved foundation for tax policy is ineffective and counterproductive.

Public officials have an obligation to make our tax code better. In the case of Alaska, the least we can ask is that they don’t make our tax code worse.

 


 

• Pete Sepp is the President of the National Taxpayers Union. He resides in the Washington, D.C. area.

 


 

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