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It’s time to enact federal corporate-tax reform

BY GUEST OPINION | APRIL 15, 2011 7:20 AM

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“The need for ‘economic growth’ that we hear so much about these days will be achieved, not by government harnessing the nation’s economic forces but by emancipating them,” wrote the late Sen. Barry Goldwater in The Conscience of a Conservative.

Here, Goldwater is certainly correct: Emancipating the economy from excess taxation and regulation will lead to economic growth. Historically, cutting tax rates across the board has proven successful, as demonstrated most recently by the Reagan cuts of the 1980s and the renewal of the Bush tax cuts. In order to restore both employment and the economy, policymakers must address tax, spending, and regulatory reform. Reducing the corporate-tax rate is one area that would encourage not only additional job creation but also create incentives for businesses to grow and develop within the United States.

The federal top corporate-tax rate currently stands at 35 percent, which is significantly higher than that of other nations. The high corporate-tax rate is stifling economic growth, especially as the economy is emerging out of the “Great Recession.” The economy is still facing a weak recovery with high unemployment, escalating federal debt and deficits, and a massive increase in regulatory activity by the federal government including the Patient Protection and Affordable Care Act, all of which is causing uncertainty for businesses. All of these issues, including the possibility of high inflation and a falling dollar, are creating concern in the economy for both businesses and individuals.

Reducing the corporate tax should not be a controversial policy issue. In his State of the Union address, President Obama hinted at supporting some form of corporate-tax reform. Lowering the corporate tax would create a stimulus for the economy as well as provide an incentive for American businesses in a very competitive global market. A recent analysis by the Heritage Foundation found that lowering the corporate tax rate to 25 percent would create a scenario for significant economic growth.

Republicans in Congress are pushing to lower the corporate-tax rate and on the state level the Iowa Legislature, with the support of Gov. Terry Branstad, will consider lowering the state corporate-tax rate. The current top state rate is 12 percent, and the governor has proposed a 6 percent flat rate, which will not only simplify the tax by removing loopholes (which result in the loss of much state revenue), but also allow Iowa to be more business-friendly.

Further tax reform — as in lowering marginal tax rates across the board — along with reducing spending, paying down the debt, and eliminating unnecessary regulations will be essential to restoring the economy and encouraging business growth and entrepreneurship.

John Hendrickson is a research analyst for the Public Interest Institute, a Mount Pleasant-based nonprofit research group. The views expressed in this column are those of the author and not necessarily those of the Public Interest Institute.


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