Monday, November 23, 2015


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Every federal election cycle, the federal tax code is a main talking point for candidates seeking office. For those seeking positions in Congress, Republicans pledge to stand firmly on keeping money in the pockets of hardworking Americans while Democrats will continue to feed the spending beast with supporting tax increasing. In the race for the White House, the individual possesses a greater ability to impact the code, so candidates focus on reforming the tax code to fit their bases need or wishes.

Image result for Tax codeOver time our tax code evolved from its original function of a revenue stream funding projects and services, to a tool used to influence personal, social, and corporate behaviors. As a result, the code is extremely convoluted and ineffectively for the needs of our society. While candidates will make appearances touting plans that might never come to fruition, the plans should help make our economy more competitive in the global marketplace and provide greater equity for those participating in the system.

The United States maintains one of the highest corporate tax codes in the industrialized world. As the global marketplace continues to expand with new nations earning the emerging market status, nations compete for investments in infrastructure, jobs, and social causes. In seeking to maximize returns to investors and retention of funds for growth, leaders of global corporations consider many aspects of markets for operations, labor cost, regulation costs, and taxes to name a few. For a nation in need of sustainable job growth to improve labor participation rates and to experience ideal wage growth, the high tax level on top of other elevated cost pits us at a disadvantage for investments for operations.

A major concern for the United States Treasury Department, evidenced by recent rule changes, is the growth in tax inversion deals, which American based firms merge with international firms and reestablish its domicile to reduce its exposure to tax expenses. In addition, nations seeking such investments encourage tax inversion deals by providing negotiated tax rates, reducing tax expenses for global firms, while increasing jobs and funds in their nations. Instead of using the tax code and government agencies against the people and entities they serve, the more appropriate and compassionate approach would be to make our code more competitive in a manner that can attract investments and retain our business.

While some may argue against reducing taxes, the reality is that maintaining high rates is not effective if no one is left to pay them. And the United States really should not become a prison for firms. That is against our values. Appropriate reduction in rates can lead to increased revenues overall. That is why retailers reduce prices to incentivize spending. In the same effect, appropriate rate reductions will encourage increased economic activity that leads to higher revenues than the current code, which consistently fails to meet revenue projections.

Another major area of our tax code that needs to be addressed is the inequity in place for Americans working abroad and Americans seeking work in the environment of H1B visas. The United States is the only nation that requires expatriates, people living outside their home nation, to pay income taxes, on top of the taxes in the current location. As they are not benefiting from the services afforded by the United States government, other than fee based services, more Americans choose to renounce their citizenship to avoid the additional burden, with the number growing each year. American citizenship should not be viewed in a financial framework. In addition, domestic workers should not be put at an inherent financial disadvantage as companies save tax and labor expenses by participating in H1B visa programs.

The program is intended to provide entrances for international workers with skills not found domestically. While the United States should strive to attract the world’s best and brightest, many firms, especially the ones accused in Silicon Valley, may make the claim simply to reduce labor and tax expense. Removing the cost disparity and the lack of company matching taxes would make the decision soundly based on the skill set of the individual candidates, both domestic and foreign. Additionally, firms should not bring international workers to the United States simply to treat them unfairly. That is not the compassionate values espoused by our global market participants.

Improving our tax code is an important task for whoever earns the role of President of the United States. The code is in serious need of simplification to reduce uncertainty and allow it to perform its intended purpose. While not many candidates put forth complete tax plans, the initial positions put forth by the Democrats will head in the wrong direction. We need a simplification not more convolution.