U.S. Sen. John Thune (R-S.D.), a member of the tax-writing Senate Finance Committee, today outlined his priorities for tax reform.
Thune has introduced several bills, including legislation to repeal the death tax, a bill to improve and modernize S corporations, the CHARITY ACT, the INVEST Act, and the NEW GIG Act, that he hopes will be included in the tax reform package that is being developed in the Senate.
To learn more about Thune’s tax proposals, click here.
Thune’s remarks (as prepared for delivery):
“Mr. President, when polls ask Americans what issues are most important to them, one topic seems to score high every time: jobs and the economy.
“It’s not surprising.
“The American people have had a rough time over the past few years.
“The Obama years were characterized by long-term economic stagnation.
“Jobs and opportunities were few and far between.
“Wage growth was almost nonexistent.
“And yearly economic growth alternated between weak and woeful.
“During the last year of the Obama administration – years after the recession ended – economic growth averaged a dismal 1.5 percent.
“That’s barely half of the growth needed for a healthy economy.
“Now, there have been some encouraging signs over the past few months.
“Economic growth for the second quarter of 2017 was stronger.
“But we still have a ways to go to get where we need to be.
“Things still need to get better – and get better faster.
“And another thing, Mr. President – we want things to get better for the long term.
“During the Obama administration, there were periods of reasonable economic growth – but they were quickly followed by weak periods.
“That’s not good enough.
“We need to put our economy on a strong, healthy footing for the long term.
“So how do we do this, Mr. President?
“How do we get back on the path to long-term economic health?
“Well, one important thing we can do is reform our outdated, inefficient, and growth-stifling tax code.
“The tax code might not be the first thing people think of when they think of economic growth, but it actually plays a huge role in every aspect of our economy.
“It helps determine how much money you have left over to save or invest, or whether or not you can afford a car or a house.
“And when it comes to businesses, it can be the key to determining whether or not a young business gets off the ground or an existing business has the money to grow and hire new employees.
“Unfortunately, our current tax code is not helping our economy.
“Too often, American families find their opportunities limited by the size of the tax bill they owe to Uncle Sam.
“And large and small businesses alike find themselves struggling under heavy tax burdens that compromise their ability to grow and compete.
“So what does tax reform need to look like?
“On the individual side, of course, we need to lower income tax rates to put more money in Americans’ pockets.
“American families should be the ones deciding how to spend their earnings, not Washington bureaucrats.
“And on the business side, there are two important things we can do that will have long-term benefits for economic growth:
“First, lower tax rates for all types of businesses – sole proprietorships, S corporations, limited liability companies, and corporations.
“And, second, accelerate the rate at which businesses can recover their investment costs, to free up money for them to reinvest in their businesses, create new jobs, and increase wages.
“When it comes to lowering business tax rates, there are several things we need to do.
“For starters, we need to lower our nation’s corporate tax rate.
“The United States has the highest corporate tax rate in the developed world.
“That puts American businesses at a competitive disadvantage in the global economy.
“When American businesses are taxed at a far higher rate than their foreign competitors, it’s likely to be the foreign, rather than the American, companies that expand and thrive.
“But it’s not just our high corporate tax rate that puts American businesses at a competitive disadvantage.
“It’s also our outdated worldwide tax system.
“If we want American businesses to stay competitive in the global economy, we need to move from a worldwide tax system to a territorial tax system.
“The chairman of the Senate Finance Committee, Senator Orrin Hatch, delivered a speech the other day explaining exactly why we need to move to a territorial system.
“I highly recommend reading his full speech.
“But I’m just going to take a moment here to hit some of the high points.
“What does it mean to have a worldwide tax system?
“Under a worldwide tax system, American companies pay U.S. taxes on the profit they make here at home, as well as on any profit they make abroad, once they bring that money home to the United States.
“The problem with this is twofold.
“First, these companies are already paying taxes to foreign governments on the money they make abroad.
“While the current tax code gives them some credit for those foreign tax payments, they can still end up paying some U.S. taxes when they bring that money home, meaning they’re being taxed twice on those profits.
“This discourages companies from bringing their profits home to invest in their domestic operations.
“If the tax burden for bringing that money home is too great, they have a strong incentive to leave that money abroad and invest it in foreign workers and economies.
“The other problem is that most other major world economies have shifted from a worldwide tax system to a territorial tax system.
“In a territorial tax system, you pay taxes on the money you earn where you make it, and only there.
“You aren’t taxed again when you bring money back to your home country.
“‘Most of American companies’ foreign competitors have been operating under a territorial tax system for years, so they’re paying a lot less in taxes than American companies are.
“And that leaves American companies at a disadvantage.
“These foreign companies can underbid American companies for new business simply because they don’t have to add as much in taxes into the price of their products or services.
“By moving to a territorial tax system here in the United States – a move supported by members of both parties – we can put American companies on an even footing with their global competitors.
“And with a territorial tax system and lower corporate tax rate, we can provide a strong reason for companies to keep their operations here in the United States and bring their profits back home, instead of incentivizing companies to send their operations overseas the way we do now.
“Improving the competitiveness of American companies and giving them a reason to reinvest their profits back home will have huge economic benefits – not only for American companies competing in the global marketplace, but also for all the small and medium-sized companies that form the supply chain here in the United States.
“For every American company that operates in countries around the world, there are countless companies here at home that supply the raw material for the products sold abroad.
“Businesses that handle the packaging and shipping of those products.
“And enterprises that supply support services like accounting, legal, and payroll services.
“And the list goes on.
“America’s global companies rely on a web of supporting businesses that spans the country.
“As a result, when American companies are successful, so is the American economy.
“Now, Mr. President, obviously lowering corporate tax rates and moving to a territorial tax system will have the most impact on American companies with an international footprint.
“So tax reform also has to focus on that other engine of economic growth – the American small business.
“Like bigger businesses, small businesses currently face high tax rates, at times even exceeding those paid by some large corporations.
“Lowering tax rates for small businesses has to be a part of any tax reform bill.
“A dollar saved in lower tax rates is a dollar a small business owner can put back into the business to expand, add another worker, or give employees a raise.
“The other thing we can do for small businesses is allow them to recover their investments in inventory, machinery, and the like faster.
“Under current law, small and medium-sized corporations are often required to use a method of accounting known as accrual accounting.
“Basically, what that means is that a business has to pay tax on income before it receives the cash and cannot deduct all of its expenses when it pays the invoice.
“And for investments in equipment and facilities, the delay in recovering the cost of the investment can be even longer.
“For instance, right now, the cost of a computer is recovered over five years, tractors over seven years, and commercial buildings over 39 years.
“For many businesses, this means it can be many years before that substantial investment can be fully deducted.
“That can leave a business extremely cash-poor.
“And cash-poor businesses don’t expand.
“They don’t hire new workers.
“And they don’t increase wages.
“Boosting small businesses’ available cash by allowing them to recover their investments faster is one of the most important things we can do to help small businesses thrive.
“I’ve actually already introduced legislation to do just that.
“My bill, the INVEST Act, focuses on allowing new businesses to recover their start-up costs more quickly and allowing existing small and medium-sized businesses and farms and ranches to recover their investments faster, in some cases deducting the acquisition costs immediately.
“Mr. President, all of the tax reform priorities I’ve discussed here today, and more, will be part of the final tax reform package we develop here in the Senate.
“Members of the tax-writing committees in both the Senate and the House have spent years working out the best approach to tax reform.
“And both committees have redoubled their efforts this year, even as the Senate and the House took up a variety of different priorities.
“Last week, leaders from the Senate, the House, and the administration announced that the Senate Finance Committee, of which I am a member, and the House Ways and Means Committee would begin putting together a final version of a tax reform package.
“Our goal is for the Senate and House to take up and pass the legislation sometime this fall.
“I’m looking forward to working with Chairman Hatch and all of my colleagues at the Senate Finance Committee to put together the final bill.
“American families and businesses are counting on us to enact a tax system that works for them, not against them.
“And that’s what we intend to give them.”