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Tuesday, Feb 18, 2025
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How to Dodge Default, Spur Growth

In the seemingly never-ending debt negotiations, Washington appears to reach some consensus on the “What”: any agreement must have at least $4 trillion of debt reduction over the next decade.

The reasons “Why”: the current budget path is unsustainable, we borrow 42 cents of every dollar we spend (much of which comes from unfriendly nations), and our elevated debt levels are preventing economic growth and job creation.

It appears, however, the negotiations have reached an impasse on the “How.”

After agreeing to a 3-to-1 ratio of spending cuts to revenue raisers, and finding roughly $2 trillion in cuts from discretionary spending and tweaks to entitlement programs, little more was settled upon when changes to the tax code entered the conversation.

This potential stalemate is unfortunate given that this is a rare instance where the best of both worlds —revenue increases and economic growth—is quite plausible.

The solution is lowering the corporate tax rate while simplifying the corporate tax code. At 35% , American businesses face the highest corporate tax rate in the developed world, 10% higher than the average among our competitors.

With a stagnant economy, excessive regulation, and an aging population, the incentives for locating a business in the U.S. vis-Ă -vis Europe or Asia are evaporating quickly. The longer we allow our competitive edge to slip, the more difficult a recovery will be.

The impact of a cut in the corporate tax rate would be felt almost immediately, and capital investment in the U.S. would surely rise.

Unlike additional government spending, cutting the corporate tax rate will actually increase revenue to the U.S. Treasury as a byproduct of additional economic growth. According to some economists, if the U.S. slashed its corporate tax rate to 26.4% from 35%, it would generate $748 billion in additional tax revenue over the next 10 years.

Beyond making a beleaguered economy more appealing for businesses and raising additional revenue, lowering the corporate tax rate would open the door to negotiations on the myriad loopholes that have come to define our tax code. While these loopholes do little to spur economic growth, they go a long way in keeping smaller businesses at a competitive disadvantage over their larger counterparts because they simply cannot afford to navigate the opaque code.

According to the National Taxpayers Union, the cost for compliance among corporations is $159.4 billion annually—and the U.S. ranks 65th in time spent complying with tax filings.

Cutting the corporate tax rate is a worthwhile endeavor.

Given the desire for additional revenue, the debt negotiations seem to be the ideal vehicle.

With so much at stake, now is the time for the business community to weigh in with Congress and the president and urge us to seize this opportunity as talks move forward.

If done correctly, we can dodge default and spur growth.

Royce represents California’s 40th district, which spans Anaheim, Buena Park, Cypress, Fullerton, Garden Grove, La Palma, Los Alamitos, Orange, Placentia, Stanton, Villa Park and Westminster.

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