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ALLEN: Remembering the tax-reform lessons that Reagan taught

It’s the key to freedom, fairness and renewed hope

- - Friday, February 21, 2014

These days we hear gloomy statements that no significant reforms can be accomplished by a lame-duck president in his sixth year in office with a partisan, divided House and Senate, in an election year.

Fortunately, there are a few goals both sides agree upon: We need to boost our underperforming economy, thereby creating more jobs. One solution should also be crystal clear: It's time for a complete overhaul of our complicated, costly tax code.

It's instructive to reflect on the United States' last major successful tax simplification effort, the Tax Reform Act of 1986. President Reagan was in his sixth year as president, Republicans controlled the Senate and Democrats ruled the House.

It didn't seem like an ideal time, but leadership in Washington joined together to improve opportunities for Americans by creating a simpler, fairer and more competitive tax code.

The United States experienced strong economic growth and prosperity in part as a result of a lower corporate-tax rate that allowed the nation to become more economically competitive with Western Europe and Japan.

A simplified, fairer code also made it easier for taxpayers and businesses to comply, reducing administrative costs and boosting confidence in the fairness of tax laws envisioned by Reagan.

Through the past 28 years, the U.S. tax system has been made more time consuming, confusing and onerous. The need for new, pro-growth comprehensive tax reform is greater now than in 1986.

Since then, more countries have grown and have lowered their taxation on businesses, while our tax rates have risen.

Additionally, America now competes with all of Europe, North America, Australia, Russia, China, India, South Korea (indeed most of Asia), much of Latin America, and increasingly, Africa.

Despite heightened competition, the U.S. government not only imposes the highest corporate-tax rate in the developed world — nearly 40 percent — and it imposes an additional tax on American-based businesses bringing foreign profits back home.

Additionally, businesses are drowning in the ever-increasing complexity of the discriminatory tax code, and are punished for profitability and job creation. The government should be implementing tax laws that enable companies to invest and reach consumers abroad — 95 percent of the world's consumers are located outside of the United States.

An effective tax code would increase revenue without raising taxes on businesses in this country. We must create a system that boosts our economic competitiveness, and improves our balance of trade with fewer volatile imports and more "Made in USA" exports.

That's why the time is ripe for our elected leaders to get to work — together — on comprehensive tax reform. House Ways and Means Chairman Dave Camp, Michigan Republican, is poised to release his long-awaited tax plan, and incoming Senate Finance Chairman Ron Wyden, Oregon Democrat, has already laid out his agenda and plans to make tax reform a top priority.

Most importantly, both have shown they are capable and willing to work across party lines on the issue to reach bipartisan consensus. To maximize any tax-reform efforts, the following goals and principles must take priority:

First, encourage job creation and investment by lowering corporate and business tax rates to a level competitive with our major trading partners. To attract investors, tax reform should be revenue-neutral, and keep the tax rate on capital gains and capital-cost recovery as low as possible.

Second, adopt a competitive, modern international tax system, similar to those in most other industrial countries. To encourage investment from abroad, double-tax burdens must be eliminated in the United States.

Finally, ensure a simpler and balanced system by treating all businesses fairly without regard to sector, size or the type of entity. The current individual and corporate alternative minimum tax rules are outdated and should expire.

A new system should incorporate straightforward, predictable rules that boost taxpayer confidence in the fairness of the law and ease in compliance.

Comprehensive tax reform is in the best interest of America. It's happened before in a similar time of need. Let's be motivated to create a more vibrant, competitive economy that promotes job creation and innovative investment here in the United States.

This is an opportunity to prove once again what President Reagan taught us: "Governments don't produce economic growth, people do." Also, "Let's not let prisoners of mediocrity wear us down," and "the few rob us of all our dreams." America needs positive leadership again.

George Allen is a former governor and U.S. senator from Virginia. He serves as Reagan Ranch Presidential Scholar for the Young America's Foundation.