America has not overhauled its tax-code system since 1986. While reform is not easy, the House took on this challenge and passed the Tax Cuts and Jobs Act, which will reform, simplify and modernize our tax system. I believe such reform is a must to grow our economy, create more jobs and raise wages.
I strongly believe that any tax reform must provide incentives for small businesses, the engine that drives economic growth, and second, it must provide tax relief for hardworking Americans.
As a former small-business owner, I understand the hurdles small businesses face and the challenges many go through just to keep their doors open. One of the biggest is the onerously high income-tax rates small-business owners pay when they become successful.
Under the current system, most small-business owners “pass through” profits as personal taxable income. If the business is successful, those profits can be taxed at the highest individual marginal tax rate, 39.6 percent. Capping these rates at 25 percent (the lowest since 1931) will give small-business owners an incentive to continue to grow.
The bill that cleared the House calls for doubling the standard deduction to $12,000 per individual and to $24,000 per married couple. This means far fewer people will need to itemize, saving them time and money. It also includes an additional $600 in childcare tax credit, bringing the total to $1,600 per child.
The legislation will also help middle-class families by bringing back jobs lost to other countries when U.S. corporations moved overseas due to our corporate tax system. At 35 percent, our corporate rate is the highest in the industrialized world, and secondly, we are unique among our international competitors who don’t tax overseas profits when they re-enter their country. U.S.-based companies today pay taxes to both the host country and to the IRS when bringing their profits back. The net result is that U.S. corporations not only have been incorporating in other countries, but those that are still U.S.-based are keeping their profits overseas.
In both cases, these businesses reinvest their profits overseas, instead of bringing profits back to help build a stronger U.S. economy. Middle-class families rely on these publically-traded corporations for their tax-deferred retirement savings (i.e. 401k), as well as defined-benefit pension funds.
According to the nonpartisan Congressional Budget Office, this legislation, without factoring in any economic growth, is projected to add $1.5 trillion to the debt over the next 10 years. However, the same CBO has stated that each 0.4 percent in economic growth will generate $1 trillion in tax revenues to the federal government over that same time period.
The economy has already moved from 2 percent to over 3 percent growth due to a reduction in regulatory burdens and in anticipation of tax reform. With tax reform, I believe we can have sustained economic growth that will not only help pay down the debt, but provide increased opportunities for small businesses, workers and their families in Colorado and all across America.
U.S. Rep. Mike Coffman, R-Aurora, represents the 6th Congressional District.
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