November 17, 2011

How U.S. Tax Policy Affects Business Investment and Job Creation ~Dan Mastromarco - FairTax

 Testimony of Dan R. Mastromarco

Before the Joint Committee on Economics

on How U.S. Tax Policy Affects Business Investment and Job Creation

November 17, 2011


Dear Mr. Chairman and Members of the Committee:

Let me begin with an observation leading to a compliment. My observation? The debate over America‘s tax system is not about one problem. It is about a bundle of competing problems searching out competing solutions. Although all Americans share a fervent disdain for the tax system, they do so for many reasons. Before policymakers can make true progress in discussing the effectiveness of various alternatives in achieving reform goals, therefore, they must first agree upon the common issues reform is meant to address. Stated another way, they must decide ―what are the central problems with our current system?‖ before they can intelligently ask ―how well the ideas for reform address those problems?‖.

My compliment? The Committee insightfully titled this hearing ―

How American Tax Policy Affects U.S. Businesses.‖ Shrift was doubtless given to titling it ―Whether U.S. Tax Policy Affects Business.‖ U.S. Tax policy affects, and unfortunately disaffects business, in ways well beyond the tax expenditures purposely designed to affect that result.1 In short, our tax regime influences business from the cradle to the grave: whether or not to start a business, what business to start, how to organize it, where to locate it (here or abroad), how to fund and run the business, when and how to expand it, when to hire, when to terminate it and how to unwind it.

Over the course of the last 25 years, I have seen how tax policy affects business from many angles: as a practitioner, an advocate, a federal prosecutor, an adjunct professor, an author of treatises and a book on the policy process, and as a Congressional counsel. And from these differing perspectives, I cannot help but see the discouragement of many economists whose voices of reason are ignored; not so much because they are discordant, but because they are drowned out by the deafening din of lobbyists. Our tax system has in a nutshell devolved into an unholy trinity of lobbyists, industry seeking relative advantage and Members who seek campaign contributions, all of whom would sacrifice at the altar of a public auction our national prosperity for relative advantage.

The good news is that Tax reform is coming. It is a tide that if resisted by this Congress will be passed by their replacement. But the bad news is that the direction of tax reform remains to this day uncertain. What will reform look like? What are the criteria by which reform will be adjudged? Will reform be accomplished in name only, to leave to another generation the ultimate fix when the economy has worsened?

Understanding how we have gone astray is as easy as hearing the central chorus of economists. They will tell you that the critical maladies of our current system are three-fold:

its complexity, prolixity and crushing compliance costs;

its high marginal rates which trample productive income, stifle growth, job creation and wages;

an anachronistic international tax system that is self-flagellating.

And many will tell you, as I will today, that the solution to this crisis is a consumption tax that makes the taxes we pay visible, ensures all Americans are stakeholders, is neutral as to savings and investment, lowers marginal rates, reduces compliance costs and removes the anti-competitive nature of our non-border adjustable extraterritorial tax system. The best of these is the FairTax, which stands in such stark...

If everyone knew all there is to know, they would not do half the things they do, including myself, therefore I must foregive them, including myself.

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