Tax Reform

from Newt's five Challenges

We need to change our tax policies to make American companies more competitive around the world. One example is the tax incentives for corporate headquarters location. There was a significant tax advantage for Daimler to acquire Chrysler but there was a significant disadvantage for Chrysler to acquire Daimler. By remaining blind to the consequences of our tax code, we are favoring market forces that will gradually lead to more takeovers of American companies by foreign firms (e.g. Siemens taking over Westinghouse). The European Union now blocks American mergers even between American companies (e.g., Honeywell and General Electric). If we want the United States to be the multinational headquarters of the world, we are going to have to rewrite our tax laws so that there are no tax disadvantages to an American firm acquiring an overseas competitor. Moreover, we might want to consider creating an incentive for American firms to make acquisitions so the United States becomes the center of executive talent in the world.

The United States is creating millions of jobs while the job market in Europe continues to stagnate. Moreover, the United States has a rising productivity rate that is beginning to pull away from the European Union. America's new jobs have been to a large degree higher paying, cleaner, healthier, and more desirable than the jobs they replaced. The insourcing of new jobs is far greater than the outsourcing we hear so much about in political and news media rhetoric.

Taxes make a big impact on innovation and adaptation. The United States needs a tax code that favors work, savings, investment, productivity, and creative entrepreneurs. We should abolish the death tax permanently so that entrepreneurs, family farmers, and business owners no longer have to fear losing their life's work to the tax collector.

Furthermore, we must eliminate the capital gains tax to encourage investing. Federal Reserve Chairman Alan Greenspan testified that the most economical rate for taxing capital gains is zero because tax-free capital gains will encourage much greater risk-taking and lead to more entrepreneurial behavior. This leads to more prosperity, a bigger economy, and better jobs.

We should create tax incentives that encourage research and development. The 50 percent research and development tax credit should be made permanent and be applied to companies that are willing to take on government's "grand challenges" (for example, the first inhabitable moon base). Investments in new technology and machinery should also be expensed 100 percent in the first year. The present complex code of depreciation makes no sense in a time of rapid change. It is better to encourage overinvestment in new technology and new machinery to keep American workers at the cutting edge of opportunity. Our goal should be to ensure that American workers have newer, better, and more productive equipment than their foreign counterparts.

Investment in new knowledge to expand the human capital available should be 100 percent deductible as long as it is job or profession related. The deduction could be taken by either the company or the individual depending on who made the investment.

These changes would dramatically accelerate America's competitive development, help us lead the world in productivity, and create high-value jobs.

Posted by David at 4:08 PM | | Comments (2) | TrackBacks (0)

Comments

What about real structural tax reform? Shouldn't the tax code be flattened and simplified? What do you think about the Armey or Hall-Rabushka plans?

Posted by: Chris Schorr | May 16, 2006 2:51 PM

We need his position on individual income tax reform as pertains to the Fair Tax (with repeal of the 16th Amendment and elimination of the IRS) or the flat income tax.

Posted by: Alex Daley | January 31, 2007 1:22 PM