Administration confused regarding tax policy

This burden can devastate those inheriting family-owned
businesses and other productive operations. Even after exemptions on part of
the estate’s value, some family farms and businesses won’t be able to survive
intact once their tax bills are paid. According to research from a former
Congressional Budget Office Director published by the American Family Business
Institute, reinstating the 35 percent death tax will still result in 850,000
lost jobs. And individuals weren’t the only targets lame-duck elected officials
aimed to tax to death.

The White House’s Fiscal Year 2011 budget calls for the
elimination of “dual capacity” tax status for some U.S. multinational
corporations. Congress established the protection in 1983 to keep U.S.-based
firms from being hit with taxes twice on revenue already taxed by countries
where it was earned.

Without dual capacity, double taxation would discourage
international growth of U.S. companies and place us at a competitive
disadvantage to foreign firms that do not face such a penalty at home.
Moreover, supporting job opportunities within the U.S. necessary to companies
operating abroad would be limited. It is counterintuitive for policymakers to
acknowledge double taxation as troublesome for individuals while pursuing it
for corporations.

The tax extension deal also includes provisions to reduce
the payroll tax in order to send more money home with employees. Allowing
people to keep more of what they earn contributes to a vibrant economy in a
variety of ways, from helping retail sales (and the jobs associated with them)
to encouraging long-term retirement investments (and the stock-market activity
associated with them). The same is true for businesses, but once again policies
prove inconsistent.

President Obama and his allies in Congress would eliminate
a job-creating deduction for domestic manufacturers known as Section 199. This
provision effectively reduces the corporate tax rate for many firms whose goods
and services can be sold domestically and abroad. Some would take away the
Section 199 protection solely for our oil and gas companies; however, doing so
would simply raise tax overhead costs, which in turn would be passed on to
consumers, further weakening prospects for an economic recovery.

What’s more, eliminating the deduction for one industry
puts its validity in doubt for all businesses, creating more uncertainty for
plans to hire new employees, increase wages, and expand operations.

Enabling this kind of expansion – as opposed to enacting
shortsighted, politically expedient tax hikes – will over the long run provide
government programs with stable and sustainable revenue flow from income and
other existing taxes. Given the failure of the stimulus packages to produce
serious, long-lasting employment growth, politicians ought to understand by now
that funds go further toward job creation in the hands of the private sector,
not bureaucrats.

The main focus of the tax package is to keep Americans
from taking on higher tax burdens in 2011 (and thus keep voters from taking on
new representatives in 2012). Yet, legislators seem oblivious to similar
problems that would handicap the very firms which can employ those Americans.
In order to turn our economy around, Congress must move beyond populist
posturing, and work toward tangibly improving the business climate.

With Japan’s recent decision to cut its corporate tax rate
by 5 percent to stimulate growth, America is home to the highest rate among
industrialized nations. Until the U.S. follows suit with lower rates and a
simpler tax system, the dual capacity and Section 199 protections remain vital.
We need our federal government to act like a business, not a burden, and make
wise investments in our future.

Pete Sepp serves as executive vice president for the
362,000-member National Taxpayers Union, a nonpartisan citizen group founded in
1969 to work for lower taxes and smaller government at all levels.