Almost 26 years ago to the day, President Reagan signed into law historic, bipartisan tax reform that slashed tax rates and eliminated billions of dollars in loopholes. Initially, no one thought such bold reform could make it across the finish line, especially because of numerous entrenched special interests that defended every loophole and carve-out. Yet, bolstered by the leadership of President Reagan, Democrats and Republicans were able to work together and pass a tax-reform bill that stimulated robust economic growth for years to come.
America faces a similar challenge today. As in 1986, there is a consensus that Congress should clean up our tax code with reform that lowers tax rates and helps our economy grow. For example, at more than 39 percent, America’s combined corporate tax rate is the highest in the developed world, putting our businesses at a competitive disadvantage.
Republicans are ready to work with President Obama and Democrats in Congress to pass comprehensive, pro-growth tax reform that can simplify the tax code and provide more certainty to all Americans. President Obama argues that his re-election provides a mandate for a tax increase on “the wealthy.” Republicans note that such a tax would hit about a million small business owners who pay taxes as individuals rather than as corporations.
According to the accounting firm Ernst & Young, this tax increase on business owners would kill 710,000 jobs. To add insult to injury, the non-partisan Congressional Budget Office recently estimated that the president’s tax hike would cost the economy more net jobs than were created during his entire first term. Raising taxes on our most successful businessmen and women to nearly 45 percent would also put the brakes on job creation at a time when 23 million Americans are still struggling to find work. A better approach would be to temporarily extend all current tax rates as a bridge to allow Congress to tackle tax and entitlement reform next year; such reform could produce additional revenues through economic growth – similar to a plan Republicans (myself included) proposed in the unsuccessful “supercommittee” last year.
Indeed, 2013 can yield a different result only if Congress passes and the president signs legislation to avoid the fiscal cliff, which otherwise would result in a $4.5 trillion tax increase over 10 years and automatic spending cuts that would cripple our national defense capabilities.
Instead of targeting small businesses for a huge tax hike, the president could ask Congress to send him a bill extending current tax rates for everyone (just like he did in 2010). And, rather than attacking Republican solutions for tax reform, the president could present a credible, detailed plan of his own.
This is President Obama’s moment, should he choose to seize it.
With his leadership, and the cooperation of his allies in Congress, our nation can avoid the fiscal cliff, reform the tax code, and promote economic growth – all without harming American families and small businesses. The generational challenges we face can be solved, but they will require presidential leadership and a renewed focus on pro-growth policies that can ensure prosperity for current and future generations.