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1 William McBride, Twelve Steps toward a Simpler, Pro-Growth Tax Code 1 (2013)

handle is hein.taxfoundation/taxfaama0001 and id is 1 raw text is: TAX FOUNDATION October 30, 2013 No. 400 Twelve Steps toward a Simpler, Pro-growth Tax Code By William McBride, PhD After years of slow economic growth and a burgeoning tax code, many in Congress and elsewhere have recognized that now is the time for tax reform. Unfortunately, the political process is often at odds with reform, because it tends to protect the status quo, including the tendency to use the tax code to implement industrial and social policy rather than using it simply as a way to raise revenue. Meanwhile, the U.S. tax system has become less and less competitive as the rest of the world works to reform their tax codes. If the U.S. is to regain its standing and return to robust economic growth, it will need to first acknowledge the areas of the tax code that are the least competitive and most problematic in terms of complexity. The following are twelve steps that should be taken toward a simpler, pro-growth tax code. 1. Cut the Federal Corporate Tax Rate The combined U.S. statutory corporate tax rate is the highest in the developed world at 39.1 percent (35 percent federal rate plus an average of state and local rates). The U.S. corporate tax rate was competitive in the 1990s, but tax competition has left us behind in the intervening years. The average corporate tax rate among developed countries is now 25 percent.1 The best course of action is to reduce the federal corporate tax rate from the current 35 percent to 20 percent or lower so as to be competitive even after state and local taxes are included. 2. Improve Capital Allowances U.S. businesses are generally not allowed to immediately deduct the cost of investments in buildings, machines, and other equipment. Instead, businesses must write these investments off over years or even decades.2 Stretching out these deductions reduces the incentive to invest. Furthermore, relative to other ' The simple average of corporate tax rates in OECD countries outside the U.S. is 25 percent, while the average weighted by GDP is 29 percent. 2 Stephen J. Entin, The Tax Treatment of CapitalAssets and Its Effect on Growth: Expensing, Depreciation, and the Concept of Cost Recovery in the Tax System, TAx FOUNDATION BACKGROUND PAPER No. 67 (Apr. 24, 3013), httD://taxfourdatior.o g/article ns/tax-treatment-caoital-assets-and-its-effect-growth-expensing-depreciation-and-concept-cost-recovery.