Friday, May 12, 2017

Opinion: Tax reform would benefit railroads, customers, and the economy

Written by  Patrick J. O'Malley
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Opinion: Tax reform would benefit railroads, customers, and the economy Michael Vadon via Flickr

With Washington lawmakers setting spending levels through September, elected leaders are now turning to healthcare and tax legislation. Congress will reportedly work on a tax plan in concert with the White House, likely incorporating elements of the Trump administration’s recently released principles, which include reducing the corporate tax rate to 15 percent. Time will tell if legislation ultimately reflects that rate, or perhaps one a bit higher.

This is an historic opportunity: an overhaul of our outdated, complex and uncompetitive business tax system – rooted in a statutory tax rate of 35% – is sorely needed. If enacted, tax reform that makes the business rate more competitive globally would bolster the economic performance of railroads, their customers, and the entire economy.

Readers here understand and likely agree with economic experts such as Steve Forbes who say, “A healthy rail system spurs growth in all economic sectors.” The U.S. economy and the railroad industry are mutually dependent, with U.S. economic growth helping the railroads thrive and quality rail service supporting that economic growth.

The tax code was last revamped in 1986, and now features the highest statutory corporate tax rate in the industrialized world. The uncompetitive U.S. statutory rate correlates with low growth, less productivity gains than in previous eras, underinvestment in American enterprise, and more companies doing business elsewhere. This uncompetitive tax rate drains cash and deters innovation, leaving rail customers less competitive in the global market. Railroad output and income are unable to reach their full potential if rail customers are less able to compete with their global rivals, or if American businesses relocate overseas.

As the nonpartisan Tax Foundation concludes, “The corporate tax rate is, in effect, a tax on corporate investment; a high corporate tax rate discourages investment, whereas a low corporate tax rate encourages investment...” The increase in investment from a corporate tax rate cut would lead to a larger economy. Economic growth would likely spur greater consumer confidence and spending – great news for a business tied to consumer purchasing behaviors. Not to mention that a more competitive rate will help reestablish and broaden a necessary tax base in the U.S.

Some may choose to focus on total cash taxes paid, arguing today’s tax code suffices. We strongly disagree and believe the simplicity and certainty of a lower rate should be the primary goal of corporate tax reform. Tax leaders from the Class I railroads believe a once-in-a-generation chance for major tax reform is too important and beneficial to the entire American economy to pass up. Businesses, including railroads, may well lose certain positives within the current system. But the broader impact for the entire rail network and its customers of a simpler and fairer tax code that includes a more competitive business rate will be a stronger economy. Supporting this is common sense.

O’Malley is Vice President, Taxes and General Tax Counsel, at Union Pacific and Chairman of the Association of American Railroads Tax Policy Committee.

Editor’s note: Click here for an in-depth analysis of the Trump Administration’s tax proposal.

 

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Photo of Donald Trump by Michael Vadon via Flickr, Attribution 2.0 Generic (CC by 2.0)

Attribution 2.0 Generic (CC BY 2.0)

 

 

 

 

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