IMPROVING THE AMERICAN BUSINESS CLIMATE

Reforming the Corporate Tax Code, Investing in Our Infrastructure, Training Our Workforce, and Supporting Small Businesses

Paid for by Cory Booker for Senate.

IMPROVING THE AMERICAN BUSINESS CLIMATE: REFORMING THE CORPORATE TAX CODE, INVESTING IN OUR INFRASTRUCTURE, TRAINING OUR WORKFORCE, AND SUPPORTING SMALL BUSINESSES INTRODUCTION The top priority of government today must be to grow our economy, and to do so in a way that puts Americans back to work in good-paying jobs. While that means passing the provisions of President Obamas American Jobs Act that protect the jobs of teachers, firefighters, and police officers something congress has regretfully failed to do it also means getting government in the game where it can assist American business, and out of the way where it is impeding growth or artificially supporting the wrong kind of investments. There is no stopping American business ingenuity, but we can do a far better job supporting it. From the small business on Main Street to the billion-dollar tech company spanning continents, our businesses and their employees succeed when they are bolstered by smart federal investment and a tax code that actually works. But Congress isnt doing its part. At a combined state and federal average rate of nearly 40 percent and riddled with loopholes, our corporate tax rate imposes a higher statutory tax burden than any of our peer nations, while often bringing in just a fraction of the revenue. Each year, we lose billions of dollars to congestion associated with antiquated ports and crumbling roads.1 Six hundred thousand manufacturing jobs remain unfilled due to a lack of workers with needed skills.2 Small businesses struggle to stretch capital, and forfeit tremendous resources and energy to comply with a highly complex tax code. So the charge is clear: Congress must reform the corporate tax code, invest in infrastructure, develop our workforce, and help new and innovative businesses get off the ground and thrive. We must reform our corporate tax code, making it simpler, fairer, and more dependable. We should replace counterproductive loopholes with incentives that support national priorities, while also lowering rates and increasing revenue with an eye towards global competitiveness. Right now, our bloated tax code is pushing jobs and investments overseas. Democrat or Republican, we can agree that this must change. Even with an efficient corporate tax code, businesses need 21st century roads, bridges, rail lines, and energy and technology infrastructure to compete. These improvements put Americans back to work in meaningful, good-paying jobs, while providing tremendous short- and long-term returns on investment. American workers are our greatest asset. We must prioritize training our workforce to meet the rapidly growing global skills gap. This emerging dynamic presents both a threat and an opportunity. We must choose opportunity, and help American workers compete by
1

Falling Apart and Falling Behind, Building Americas Future (accessed on Sept. 25, 2013), http://www.bafuture.org/pdf/Building-Americas-Future-2012-Report-32013.pdf. 2 Amy Sullivan, Why Jobs Go Unfilled Even in Times of High Unemployment, The Atlantic (Aug. 19, 2013), http://www.theatlantic.com/business/archive/2013/08/why-jobs-go-unfilled-even-intimes-of-high-unemployment/278801/.

Paid for by Cory Booker for Senate.

providing everything from universal early childhood education to accessible vocational and higher education. And we can do more to support our small businesses and entrepreneurs. We should pursue measures such as promoting accounting rules that recognize the resources available to small businesses, increasing the availability of loans through the Export-Import Bank, and raising the deduction cap on start-up investments. There is common ground to be found if we focus on commonsense solutions to obvious problems. This paper highlights just some of those problems, and the solutions that can help put Americans back to work and keep our economy growing for years to come. I. REFORMING THE CORPORATE TAX CODE Our corporate tax code offers a veritable menu of misplaced incentives, misdirected priorities, unwarranted loopholes, and a high tax rate that combine to make the United States less competitive globally. But there is an alternative. Together, we can create a simple, dependable tax code that levels the playing field, creates jobs, and positions American businesses to lead the world. Further, by cutting the rate and eliminating loopholes, we can significantly reduce the influence of special interest groups. Above all, we must craft a tax code that reflects our national priorities. While corporate tax reform has proven elusive, it need not be. Any eventual solution should include the following: a. Lowering the corporate tax rate. To lead our hypercompetitive global economy, we must streamline the tax code and lower the statutory corporate rate, which at an average near 40 percent when state and federal rates are aggregated, is the highest among all peer countries. A reduction of the corporate tax rate to near 28 percent, along with the elimination of loopholes and tax-avoidance mechanisms, would bring the United States in line with its peers. It would also level the playing field between U.S. multinational firms and their foreign competitors, as well as between U.S. domestic and multinational companies. The United States offers the best products the world has ever seen. Now we must ensure that the businesses making them have every opportunity to succeed in the global marketplace. b. Eliminating misdirected corporate loopholes. The U.S. corporate tax code is teeming with special considerations for large corporations, forming a patchwork of tax breaks, loopholes, and exemptions. Companies take advantage of these special carve-outs to pay much less than the official corporate tax rateand often pay nothing at all. A 2008 study by the Government Accountability Office (GAO) found that 55 percent of U.S. companies paid no federal income taxes for at least one year of the seven-year study period.3 Under our current system, these practices may be perfectly legal, but they arent fair. We can start to streamline the tax code, broaden the corporate tax base, and level the playing field, by:

International Taxation: Tax Administration: Comparison of the Reported Tax Liabilities of Foreign and U.S.-Controlled Corporations, 1998-2005, Government Accountability Office (July 2008), http://www.gao.gov/new.items/d08957.pdf.
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i. Removing deductions for businesses that move jobs overseas; ii. Reevaluating the accelerated depreciation schedule to ensure it balances taxpayer cost with business needs; iii. Exploring phasing out the last in, first out accounting method in a way that is sensitive to our ongoing economic recovery; iv. Ending costly, preferential tax breaks for oil and other fossil fuel companies. c. Combating egregious tax avoidance. Companies avoid paying their fair share of taxes through a web of complex systems, including internal transfer pricing, debtfinancing schemes, and check the box regime exploitation. These mechanisms create an incentive to spend time and resources gaming the system, rather than creating new jobs. Reliance on subsidiary corporations as tax havens is widespread: A 2008 GAO report found that eighty-three of the 100 largest publicly-traded U.S. corporations in terms of revenue reported having subsidiaries in jurisdictions listed as tax havens or financial privacy jurisdictions.4 As a result, the United States loses billions of dollars in taxesrevenue that could go toward making business-friendly infrastructure improvements, training a world-class workforce, funding smart tax expenditures, and lowering the overall rate to promote fairness. We can start by considering the following proposals: i. ii. iii. iv. v. vi. Disallowing deductions on deferred foreign income to encourage repatriation; Imposing a minimum tax on all income earned by foreign subsidiaries; Eliminating the contract manufacturing exemption to Subpart F of the tax code; Pushing for international tax transparency rules; Clarifying the transfer price of intangible assets; Promoting repatriation of current foreign cash holdings in ways that ensure investments in American jobs and infrastructure.

d. Incorporating strategic incentives and stability into the tax code. Instead of misguided tax breaks for corporate jets and building golf courses, we should incentivize growth in the industries that can drive the 21st century global economy. In doing so, we can create good-paying jobsmanufacturing jobs, for example, pay 17 percent more than non-manufacturing jobsand ensure that the United States is at the forefront of global innovation.5 We must also make the tax code more stable. Under our current system, it is often unclear whether Congress will renew vital tax credits, even in cases where the credit has strong bipartisan support. As a result, investors lack the certainty needed to make long-term investments in emerging industries. We can leverage the tax code to create stability for businesses and encourage job creation by:

Large U.S. Corporations and Federal Contractors with Subsidiaries in Jurisdictions Listed as Tax Havens or Financial Privacy Jurisdictions, Government Accountability Office (December 2008), http://www.gao.gov/assets/290/284522.pdf. 5 The Benefits of Manufacturing Jobs, U.S. Department of Commerce: Economics and Statistics Administration (May 7, 2012), http://www.esa.doc.gov/Reports/benefits-manufacturing-jobs.
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i.

ii. iii. iv. v.

Increasing the Domestic Production Activities Deduction so that the corporate tax rate for manufacturers is 25 percent, with additional incentives for advanced manufacturing; Making permanent the R&D tax credit and expanding the alternative simplified research credit from 14 to 20 percent; Permanently extending and making refundable the renewable electricity production tax credit; Creating a tax credit for bringing jobs to the United States, with additional credits for manufacturing and advanced manufacturing; Permanently extending the New Markets Tax Credits Program.

II. INVESTING IN INFRASTRUCTURE American businesses rely on efficient and comprehensive transportation, energy delivery, and communications systems. Cutting edge infrastructure is vital to opening new domestic markets and attracting international trade that will allow America to compete and create jobs. Yet, current federal and state investment in infrastructure is not commensurate with need. A recent study found that 65 percent of American manufacturers think our infrastructure is incapable of responding to the competitive demands of the U.S. economy.6 Imagine high-speed rail capacity that can get you from New York to Chicago in five hours,7 flights that are both shorter and less likely to be delayed, and ubiquitous access to highspeed internet. By investing in infrastructure, we can revolutionize the way we do business. In particular, we should: a. Fix our crumbling infrastructure with a National Infrastructure Bank . The 2012 federal transportation bill notes, the condition and capacity of the highway system has failed to keep up with the growth in freight movement and is hampering the ability of businesses to efficiently transport goods due to congestion.8 American rail infrastructure, once considered the best in the world, now ranks eighteenth, plagued by congested choke points and crossings that force trains to travel at inefficient low speeds.9 This has real economic consequences: a weak national infrastructure not only raises production costs and reduces productivity for American businesses, but also discourages foreign investment and development. We can create jobs and strengthen our infrastructure for decades to come by creating a national infrastructure bank that leverages public funding to increase private investment in American roads, bridges, airports, marine ports and other assets.

Infrastructure: Essential to Manufacturing Competitiveness, National Association of Manufacturers (Sept. 17, 2013), http://www.nam.org/~/media/BB5F7CB7B89349BA9ADA575663AAF499.ashx. 7 Building America's Future, supra note 1. 8 Summary of Moving Ahead For Progress in the 21st Century (MAP-21), U.S. Senate Committee on Environment and Public Works (accessed on Sept. 25, 2013), http://www.epw.senate.gov/public/index.cfm?FuseAction=Files.View&FileStore_id=6d1e26906bc7-4e13-9169-0e7bc2ca0098. 9 U.S. Losing Ground in Global Marketplace, report finds, The Washington Post (Jan. 17, 2013), http://articles.washingtonpost.com/2013-01-17/business/36409907_1_global-economy-portsinfrastructure
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b. Increase funding for Next Gen Satellite-based airplane traffic control system. A safe and efficient air travel system, capable of transporting people and cargo across the country and all over the world, is central to our economy. But the U.S. air traffic control systema ground-based, radar system developed in the 1950shas not been upgraded in decades. With Next-Gen GPS-based technology, businesses can count on a faster and more reliable air transport system, with shorter flights, and fewer delays and cancellations.10 c. Bring broadband to underserved urban and rural communities. Nearly 19 million Americans are without broadband internet access. 11 This is unacceptable in todays interconnected society. Broadband is vital to small businesses, students who we will rely upon to fill tomorrows jobs, consumers who want to access the best products at the lowest prices, and citizens who want to more robustly engage in our democracy. The internet unlocks worlds of opportunity, and no one should be deprived of the key. Included in the Federal Communications Commissions National Broadband Plan is a proposal to transform the Universal Service Funda subsidy program that helps develop infrastructure and improve affordability for telephone serviceinto a program that would perform the same function for broadband internet. Congress must fully fund this programurban and rural communities simply cannot wait for reliable, affordable broadband access. d. Enacting the Water Resources Development Act. Investment in our nations waterways and marine ports will promote a robust trade market and secure hundreds of thousands of jobs that rely on interstate and international commerce. American ports are falling behind. According to the American Society of Civil Engineers, an additional investment of $15.8 billion between now and 2020 is needed to protect $270 billion in U.S. exports and $872 billion in personal income, or $770 per year for households.12 Today, the Port of Shanghai handles more shipping containers than the eight largest U.S. ports combined. 13 In order to compete in the international arena, we must increase our investment in this vital area. e. Create a national smart grid that saves consumers money and reduces greenhouse gas emissions. Upgrading our electric grid to allow businesses, homes, and other end users to send energy use data back to utilities increases resiliency and stability, and can empower businesses and consumers to use energy more efficiently. Smart grid spending also helps our economygenerating a more than two-to-one return on investment and

Next Gen: The Business Case for the Next Generation Air Transportation System, Federal Aviation Administration (Aug. 2012), http://www.faa.gov/nextgen/media/NextGen%20Bus%20Case%202012%20%282012-1005%29.pdf. 11 Eighth Broadband Progress Report, Federal Com munications Commission (accessed on Sept. 25, 2013) http://www.fcc.gov/reports/eighth-broadband-progress-report. 12 Failure to Act Economic Studies, American Society of Civil Eng ineers (accessed on Sept. 25, 2013), http://www.asce.org/failuretoact/. 13 The Washington Post, supra note 9.
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creating good-paying jobs in the clean energy sector. 14 Congress should create a competitive grant program to incentivize the adoption of smart grid technology. Further, the Obama administration should continue to streamline the process for building high voltage transmission lines that connect renewable energy to the grid. III. TRAINING THE BEST WORKERS IN THE WORLD To create high-quality jobs and empower our businesses to lead the global economy, we must have the most productive, best-educated workers in the world. The global skills gap in the manufacturing sector alone is expected to grow to 40 million by 2020.15 Americans can compete for these jobs. To meet this opportunity, we need commonsense investments in programs that equip workers with the skills needed in a 21st century economy, such as: a. Ensuring universal access to high-quality preschool starting at age three. Highquality pre-kindergarten programs provide lifelong benefits, including higher college graduation and employment rates, and generate high rates of return on societys investment.16 Despite these benefits, 28 out of 38 peer nations have a higher percentage of four-year olds enrolled in early childhood education programs.17 We must make a robust federal investment to support state efforts to provide every three and four year old access to a quality preschool education. b. Investing in STEM education to combat the skills gap head-on. Employment in STEM fields is growing faster than in non-STEM fields, 18 yet the United States lags behind developed nations in math and science education.19 To catch up, we must increase funding for schools and programs that specialize in STEM education, use competitive grant programs to promote the adoption of best practices, and provide funding for expanded learning time in schools. c. Increasing college affordability by strengthening accountability and creating a national college trust fund for EITC recipients. American employers need access to a highly-educated workforce in order to compete in todays knowledge-based
Silvio Marcacci, DOE Smart Grid Funds Created $6.8 Billion Economic Boost, 47,000 Jobs, Clean Technica (accessed on September 10, 2013), http://cleantechnica.com/2013/05/03/doe-smartgrid-funds-created-6-8-billion-economic-boost-47000-jobs/. 15 Manufacturing the Future: The Next Era of Global Growth and Innovation, McKinsey & Company (November 2012), http://www.mckinsey.com/insights/manufacturing/the_future_of_manufacturing. 16 Jacob S. Hacker & Nate Loewentheil, Prosperity Economics: Building an Economy for All (2012), http://www.goiam.org/images/pdfs/Hacker%20-%20Prosperity%20Economics.pdf. 17 Education at a Glance: OECD Indications, Organis ation for Economic Co-operation and Development (OECD) (September 2012), http://www.oecd.org/education/CN%20%20United%20States.pdf. 18 David Langdon, et. al., STEM: Good Jobs Now and for the Future, U.S. Department of Commerce, Economics and Statistics Administration (July 14, 2011), http://www.esa.doc.gov/sites/default/files/reports/documents/stemfinalyjuly14_1.pdf. 19 "PISA 2009 Results: What Students Know and Can Do," OECD Programme for International Student Assessment (2010), http://www.oecd.org/pisa/pisaproducts/48852548.pdf.
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Paid for by Cory Booker for Senate.

economy. The United States should create a college trust fund that helps make college and career education more affordable for low- and middle-income families. As proposed in the campaigns policy paper on child poverty, the trust fund would provide up to $7,200 in tuition supports per child for families that receive EITC benefits.20 We must also support the Presidents efforts to reward colleges that keep costs down, and decrease campus-based aid funding for colleges that increase tuition without providing more value to students. d. Strengthening apprenticeship and workforce development programs in highneed sectors. We must recognize that a 21st century workforce requires both workers with four-year degrees and vocational training. We can do more to prepare our workforce and meet employers needs by increasing access to vocational training, compensating businesses that promote sector-wide skills development, and creating a national certification system for advanced manufacturing skills.21 IV. SUPPORTING SMALL BUSINESSES Between mid-2009 and 2011, small businesses accounted for more than two-thirds of net job growth in America.22 To continue leading the world economy, our tax code must work for small businesses. Ultimately, this will require comprehensive reform of the individual tax code. However, there are a number of immediate steps the federal government can take to alleviate administrative burdens and incentivize entrepreneurs to invest in our economy, including: a. Permanently extending increased expensing levels for small businesses. We must do all we can to promote innovation and investment by small business owners. Small businesses can now expense $500,000 in qualified property in a year, up from $125,000 prior to the Obama administration.23 This change makes it easier for small businesses to pay taxes and creates a stronger incentive to make investments, particularly for equipment, like machinery, that has a longer depreciation schedule. b. Expanding the use of cash accounting. Each year, small businesses spend nearly two billion hours and over $18 billion complying with an overly burdensome tax code.24 For many enterprises, that translates to 80 hours a year and thousands of dollars that could be spent developing new products, investing in capital, and
See For Their Future, For Our Future: Strengthening American Competiveness by Ending Child Poverty in the United States, Cory Booker for Senate (July 2013), http://www.corybooker.com/vision/policy-papers/child-poverty. 21 See The United States Makes, The World Takes: Leading 21 st Century Manufacturing and Exports, Cory Booker for Senate (July 2013), http://www.corybooker.com/vision/policypapers/manufacturing-and-exports. 22 Frequently Asked Questions, United States Small Business Administration (Sept. 2012), http://www.sba.gov/sites/default/files/FAQ_Sept_2012.pdf. 23 Stimulus Acts, Section179.org, (accessed September 24, 2013), http://www.section179.org/stimulus_acts.html. 24 Tax Simplification and Tax Gap, National Federation of Independent Business (accessed on Sept. 25, 2013), http://www.nfib.com/advocacy/item?cmsid=1220
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creating jobs.25 This must change. By expanding the availability of the cash method of accounting for qualified businesses with receipts of up to $10 million, we can reduce the compliance burden on small businesses.26 c. Increasing the deduction limit for start-up expenses. We should do all we are able to make foundational expenses incurred when exploring and starting a business, like market research and advertising, more affordable. We can promote innovation and encourage smart investment by permanently increasing the start-up deduction limit from $5,000 to $20,000.27 d. Raising the Export-Import Banks statutory lending cap to help small businesses grow. With the ranks of the middle class growing abroad, there are ample opportunities for our small businesses to expand to new markets.28 In a highlyconnected international system, geography should no longer hamper small businesses ability to succeed. The Export-Import Banks mission is to help American companies build roots in foreign markets. Last year, the Export-Import Bank initiated a short-term export credit-insurance product and streamlined its application process to help small businesses. We should expand this effort by increasing the banks statutory lending cap. CONCLUSION As we seek to build a better economy for all Americans, we must do a better job of creating a climate in which American business can thrive and compete globally. This means revisiting a corporate tax code that has been besieged by special interests, and pulled away from the fundamental tenants of fairness and promotion of true national priorities. This means harnessing the strength found in building the greatest transportation, communications, and power grid infrastructure on the globe. This means understanding that the cost of inaction far outweighs the cost of investment when it comes to training our workforce, both present and future. This means doing more to support the small businesses that line our streets and employ our neighbors in so many American communities.

2013 Small Business Taxation Survey, National Small Business Association (April 2013), http://www.nsba.biz/wp-content/uploads/2013/04/Taxation-Survey-2013.pdf. 26 Karen Kerrigan, Is Tax Reform Possible?, Small Business & Entrepreneurship Council (Sept. 5, 2013), http://www.sbecouncil.org/2013/09/05/is-tax-reform-still-possible/#sthash.aFSzk9lp.dpuf. 27 Anne Kim, et. al., Double the Deduction for Small Business Start -Up Costs, The Third Way Economic Program (May 2009), http://content.thirdway.org/publications/163/Third_Way_Idea_Brief_-_Double_Deduction_for_ Small_Business_Start-Ups.pdf. 28 Sabina Dewan, Big Ideas for Small Business: Give Small Businesses Better Access to Export Finance, Center for American Progress (January 26, 2012), http://www.americanprogress.org/issues/economy/news/2012/01/26/10954/big-ideas-forsmall-business-3/.
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Most of all, this means that we must come together and pursue common sense reforms giving a little and taking a little where we dont fully agree all to achieve an outcome that works to advance our common ideals, and our nation.

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Paid for by Cory Booker for Senate.