Congress is deeply entrenched in an effort to reform the federal tax code. Central to this effort is a desire to lower the U.S. corporate tax rate from 35 percent to 20 percent — a level on par with the rest of the developed world. Policymakers are keenly aware of the competitive advantages this change could bring based on similar rate changes across Europe and around the globe.
Both the House’s tax bill and the Senate Finance Committee’s bill slash the corporate income tax rate from 35 to 20%, a much needed reform that will pull capital into the United States and grow the economy. Thankfully, both bills cut the corporate rate on a permanent basis.
I believe that the current US tax code imposes drag on US economic growth and alternatives to the current system could result in an increase in the capital stock, a boost in worker productivity, and thus an increase in wages. This positive economic result would occur slowly over time as new investment is deployed and workers adopt to new opportunities.
The prospect of major tax reform that broadens the tax base and lowers tax rates has the residential housing industry in panic mode. The National Association of Realtors recently called the House tax bill “an outright assault on homeownership in America.” Separately, a study commissioned by the Realtors warns that comprehensive tax reform would result in an average drop in home values of 10%. But the reality is that the housing market will be fine if the House Republican tax plan is enacted.
On a bipartisan and bicameral basis, lawmakers have proposed legislation to allow (not require) states to collect sales tax on goods purchased from out-of-state sellers. The legislation is not a new tax but rather facilitates the collection of taxes already due.
The SALT deduction is the largest itemized deduction and one of the largest tax expenditures in the entire tax code. I estimate that its repeal would raise $1.4 trillion in new revenue over a decade. In the piece for The Hill, I calculated how to “recycle” that $1.4 trillion in a distributionally neutral manner by lowering tax rates and increasing the standard deduction.
