It's almost too easy for politicians to talk about tax reform. It's much harder for them to tell the complete story when it comes to taxes, though.
After all, who loves paying taxes?
Who doesn't believe that greedy ol' gov'ment should keep its dirty mitts off our hard-earned dollars?
Yet as President Donald J. Trump and his administration begin to roll out tax reforms, it's important to remember the other part of the conversation -- the tax equivalent of eating our broccoli.
As Trump argues for change, a key component of it is taxes paid by businesses and corporations. Much of the tax relief wouldn't necessarily be felt by individuals, but by the corporations for which they work. The idea, of course, is that by lowering taxes for companies, the money will pass through to employees in the form of higher-paying jobs or more available good jobs. However, that's not always the case.
But corporations having more money isn't the problem.
Many American companies are already sitting on a pile of assets overseas, estimated at between $2.5 trillion and $3 trillion. Some of those assets are liquid, some are not. But even a "tax holiday" which would allow those corporations to bring back cash at a much lower tax rate would likely have only a minimal effect on individuals and debt, according to most experts. In other words, bringing money back to America doesn't guarantee more domestic investment nor does it reduce debt significantly.
And that's the problem. The federal debt will continue to grow for the next decade economists warn, increasing as much as $7 trillion.
The only way to cut taxes and not risk America's future is to hope that the cuts will turbocharge the economy by creating new jobs, more consumer demand and higher wages. If that gamble doesn't work, the country's economy could stagnate, while its debt continues to mount.
That's why it's so important that when considering tax cuts that citizens also demand leaders describe a realistic plan to stop the United States' mounting debt. A solution is not just increasing the debt ceiling every couple of months.
Tax reform cannot be discussed without a conversation about debt.
If we continue to lower taxes without addressing the debt, we will only prolong the time it takes for an economic crisis. The debts we incur shouldn't be the responsibility of our grandchildren.
The other challenge with discussing tax reform is that there's a lot of misinformation and half-truths. For example, while it's (mostly) true that the United States has the highest corporate tax rate in the world, it's not the full story.
The statutory tax rate for C-corporations is 39 percent. However, like all tax law, that's not what most companies pay. What companies pay is commonly referred to as the "effective tax rate" -- the real rate after all the accounting (think deductions and credits) is taken into account.
When looking at effective tax rates, as National Public Radio did last week, we're not the highest -- the United Kingdom and Japan are notably higher.
"U.S. corporate taxation isn't all that big compared with other countries'. As of 2014, U.S. corporate tax revenues were at around 2.2 percent of the GDP. The (highly developed economies) average was 2.8 percent," NPR reported.
If tax reform is going to mean anything, Congressional leaders and those in the Trump administration must also account with two other larger business tax problems.
First, not all corporations are set up the same way. The number of "S-corporations" has dramatically increased. S-corporations are usually smaller businesses which pay through the individual income tax code.
Because of that shift in how businesses are set up, revenues -- the overall money collected from businesses -- has dropped. That means that businesses generally are pay less than they have been, not more. Because the amount of taxes collected has decreased, our ability to pay our debts has also diminished. If Congress continues to lower tax rates even more, at a time when the country is collecting less income, it's hard to see how America is not set up for another spectacular and devastating financial crisis, brought about by our debt.
Furthermore, increasing the debt ceiling -- that is, America's ability to borrow money and add to the debt -- by tying it to hurricane relief seems like taking advantage of the public. In other words, members of Congress know that Americans want to help those hit by Hurricanes Irma and Harvey. By pairing the disaster relief package to the debt ceiling, it means relief for beleaguered victims while risking America's financial future. We could be solving one crisis while contributing to another one in the future.
That's why we cannot have tax reform without a commitment to paying down debt. Instead of tax reform, how about debt reform, too?