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MSCI's Position on Reducing Taxes for a Simpler System

The U.S. tax code is confusing and complex. The United States has one of the highest corporate tax rates in the world and the rates many American small businesses pay are also comparatively high. U.S. job creators also face high tax compliance burdens. According to the Tax Foundation, in 2012, (the latest year data is available), it took Americans more than three billion hours to prepare and file their tax returns, a figure equal to a $37 billion federal tax compliance burden. It took the average business filer 23 hours and $420 to comply with the federal tax code. Leaders in Washington must reduce the overall tax and compliance burden and establish a simpler, flatter and fairer system that will encourage investment and innovation. They must also avoid passing piecemeal, temporary tax plans that breed uncertainty and cause employers to put off decisions about expanding their business or hiring more workers.

The United States is burdened with a large national debt, persistent annual federal budget deficits and unsustainable entitlement programs. Raising taxes will not solve these problems and will only make it harder for U.S. companies to create jobs, invest in expanding their business, provide quality employee benefits and compete against their global counterparts. Establishing more competitive tax rates for small businesses, corporations and individuals will make the United States a more attractive place to invest, live and work. A stable, fairer tax system that encourages risk and investment will spur greater economic growth, which will produce higher revenues for the federal government.

Policymakers must –

  • Ensure a globally competitive North American manufacturing industry by reducing, not increasing, the tax burden on members of the U.S. metals industry.
  • Ensure the 28 million businesses that pay their federal taxes through the individual income tax code are treated equitably and fairly by passing comprehensive, not corporate-only, tax reform.
  • Ensure the tax code does not benefit certain individuals, businesses or industries over others.
  • Allow U.S. companies that have a global footprint to bring back their overseas profits without double taxation.
  • Put in place permanent policies that foster certainty and avoid temporary fixes that breed business and individual taxpayer anxiety.
Tax & Fiscal Issues MSCI is Acting On

The vast majority of U.S. businesses (93.4 percent) file their federal income taxes through the individual, rather than corporate, tax code. Corporate-only tax reform will not only fail to lower tax burdens on these job creators, called pass-through entities, it might raise taxes on them. According to the Tax Foundation, revenue neutral corporate tax reform that eliminates business tax provisions in exchange for a 25 percent maximum corporate tax rate would do just that. That outcome would ensure pass-through entities remain at a competitive disadvantage with their global counterparts as well as U.S. C-Corporations.

Relevant Links
Comprehensive vs. Corporate-Only Tax Reform Articles from Edge and Connecting the Dots

Over the last few years, members of both political parties have proposed repealing the last-in, first-out (LIFO) accounting principle as a means to raise revenue to “pay for” tax reform or increased spending. According to the Congressional Budget Office (CBO), LIFO repeal would increase taxes on U.S. businesses by $112 billion over 10 years. The CBO also explains that implementing tax rate reform alongside LIFO repeal would not mitigate the harm done to LIFO-dependent businesses. Indeed, several MSCI members have said LIFO repeal could very well put them out of business.

Relevant Links
Last-In, First-Out (LIFO) Repeal Articles from Edge and Connecting the Dots

For too long, Washington has set tax policy on a temporary basis, passing stopgap extensions to critical tax policies. In 2001 and 2003, Congress passed significant tax cut packages, but the majority of the provisions in these bills expired within a decade. Lawmakers extended the cuts until the 2012/2013 fiscal cliff crisis. Facing an expiration of all the 2001 individual income tax rate reductions, Congress and the White House cut a deal that raised income, capital gains and dividend taxes for many taxpayers, including some pass-though entities. Congress also fights every year to extend more than 50 tax credits and deductions, including the research and development tax credit, bonus depreciation and Subchapter S company provisions. According to a mid-2015 Grant Thornton poll, more than half of all entities that utilize at least one of these provisions have made investment decisions for 2016 based on the assumption that Congress will not extend them. Making these policies permanent would reduce uncertainty and encourage companies to invest and hire more. 

Relevant Links
Temporary Tax Policies Articles from Edge and Connecting the Dots
Taxes & Fiscal Responsibility Articles from Edge and Connecting the Dots