By Rob Nichols, American Bankers Association
Nothing in Washington that is worth doing is easy, and tax reform is no exception.
There is no doubt that our tax code needs a rewrite. As Congress’ Joint Committee on Taxation points out, since our last overhaul in 1986, our economy has nearly doubled in size, and the internet and globalization have fundamentally changed the way we do business.
Today’s tax code fails to recognize these changes, puts us at a global competitive disadvantage (the combined state and federal U.S. corporate tax rate of more than 39 percent is two and three times higher than that of “competing” countries) and ultimately hinders job and economic growth.
The good news is that leaders in the House, Senate and White House agree on the need for tax reform and are committed to its enactment. While that creates a solid foundation for this important effort, we all know it will take fortitude and persistence to change a tax code that now spans 74,000 pages.
ABA is strongly in favor of tax reform that strengthens economic growth and creates jobs. A stronger economy would be good for the country, our members, and their customers. We have made ourselves a resource to the lawmakers and staff who are at the center of this enormous undertaking, providing analysis and expertise. We also are encouraging bankers to raise this topic in meetings with their elected representatives.
Of course, like others, we have strong opinions about specific provisions, like the deductibility of interest and the tax-favored status of bank competitors. But we also know that economic growth — which tax reform is intended to spur — is priority number one for our industry, and that any package put forward must be evaluated as a whole, based on its net impact on the economy, banks and bank customers.
That is why we developed a set of core principles for tax reform that will serve as the basis for our comprehensive analysis of any package that emerges from the deliberations. Those principles, which are available in full on aba.com, urge policymakers to:
- Lower rates for all businesses substantially — 15 to 20 percent has been proposed — to boost growth and allow U.S. businesses to be competitive in the global market
- Broaden the base and simplify the tax code to level the playing field
- Specifically eliminate favored tax treatment enjoyed by credit unions and the Farm Credit System
- Consider carefully the effects of any potential effort to limit the deductibility of interest, which could adversely impact economic growth. (The extent of tax rate reductions will be a key factor in assessing the broader impact of any changes to the deductibility of interest.)
- Avoid industry-specific taxes, which would be punitive, unfair and slow economic growth
- Provide adequate transition time for the market and balance sheets to adjust to the new system
ABA developed these principles through an internal tax reform working group that has coordinated closely with ABA’s banker-led Taxation Administrative Committee and solicited feedback from bankers in various forums. We have highlighted the principles in communications to Capitol Hill, informing members that we will strongly support tax reform efforts that align with these principles.
Our goal is to encourage a smart approach to comprehensive tax reform that can help America’s communities thrive.
As a veteran of the Treasury Department in the early 2000s when tax cuts were enacted, I know this undertaking is hard — I have the bruises to prove it. But that doesn’t mean it can’t be done. It can, and we should do everything in our power to make it happen.