The Coalition for Fair Effective Tax Rates appreciates the opportunity to weigh in on the subject of comprehensive tax reform. Our coalition encourages you to pursue comprehensive tax reform and to view its progress through the lens of effective tax rates, the amount that businesses actually pay in taxes expressed as a percentage of their income.
The Coalition for Fair Effective Tax Rates is a diverse group of national, regional and state associations representing more than 1,500,000 businesses, large and small, that support comprehensive tax reform. Our coalition is bound together by the belief that tax rates should be reduced for both C-corporations and pass-through entities. We also believe that the now-wide disparities in effective tax rates paid by various industries should be eliminated through reform.
Over the past four years, CFETR has conducted a sustained campaign to advance these priorities. We’ve made good progress; the importance of effective rather than statutory tax rates have become a central part of the dialogue. That progress was in evidence on April 26 when Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn announced key elements of the Trump Administration’s tax reform plan. At that press event, Secretary Mnuchin said, “. . . the effective tax rate is what we’re focused on.”
There is wide agreement that the federal income tax code is broken and in need of comprehensive reform. Simplification and a broadening of the tax base should be priorities in this effort. In addition, tax rates should be lowered both for C-corporations and for the vast majority of businesses that pay taxes through the individual tax rate system.
The current tax code is complicated and unfair. Different industries pay very different amounts of taxes even if they report similar earnings. That’s why our Coalition strongly believes tax reform should be seen through the lens of effective tax rates. True reform should be gauged by lawmakers’ ability to reduce discrepancies between industries in the amounts they actually pay in taxes. Lawmakers also should work to create a more level playing field for businesses of all sizes across all industry sectors.
The current disparity in effective tax rates paid by different U.S. industries is huge. According to the U.S. Treasury department, effective actual federal corporate tax rates paid between 2007 and 2010 ranged from 14.5 percent to 30.3 percent. The gap is not only unfair to high-effective-rate-paying companies, it is hurting our economy by distorting the allocation of investment among industries and artificially subsidizing certain industries while penalizing others because tax preferences disproportionately favor one set of companies over others.
This fact should be a fundamental guide for your committee’s reform efforts. Entities should not pay radically different amounts of tax if they earn roughly the same amount of money. This is not just a matter of fairness, it’s also about having a tax policy that is economically sound. Comprehensive tax reform, if done well, will be a spur to economic growth in the U.S.
As you continue your work on tax reform, we urge you to keep your focus on effective tax rates, the amount businesses actually pay in taxes.
Thank you for your consideration.
The Coalition for Fair Effective Tax Rates