The Independent Women’s Forum argues that the Baucus-Grassley tax increase on publicly traded partnerships, which has been introduced before the U.S. Senate (S. 1624), will threaten the ability of the U.S. economy to compete internationally. Designed to penalize wealthy money managers, this tax increase affects the little guy too.
Capital markets drive the U.S. and the world economy and it is the creativity of the market, not governments that can improve the lives of millions of people all over the world. Government stifling of market creativity inevitably has a negative impact on economies in various countries. Creative structures for investment vehicles drive the economy and set America apart from rivals overseas.
Different organizational structures, i.e., corporations and partnerships that adhere to different tax requirements exist for a reason: to help ensure diversity in the market. Allowing the U.S. government to dictate, through the tax code, what is in essence a single structure for public organizations is a regression policy that takes us back to the days of phone company monopolies. Allowing a measure such as the proposed Baucus-Grassley tax bill to set rules for what companies can and can’t be is similar to stipulating that all hamburgers in the U.S. should consist of two all-beef patties, special sauce, lettuce, cheese. The market needs to be diverse and allow organic growth and creativity. The U.S. economy has come a long way in the last quarter century and now is not the time to move backwards.
The U.S. tax code should change with the times, but these changes must not be ones that imperil creativity and economic growth. Only growth can keep unemployment low and feed all sectors of the economy. Taxing investments and the risk that such investments entail will encourage companies not to go public and cause economic stagnation. Companies held privately are also less transparent and subject to less oversight than publicly held companies.
Through their success these equity and hedge fund managers have proved they can do more with these funds than the government can. Ask Americans who manages money more effectively the government or Wall Street and most will look to Wall Street for better returns. The proposed Grassley-Baucus tax increase would prevent many companies from going public and thereby prevent the smaller investor from participating. These IPOs can be a sterling investment that feeds pension funds and charitable endowments, which betters the community as a whole.
Just look at the percentages. Regardless of the amount of money being taxed do Americans want to encourage Congress to institute any tax rate that calculates to an estimated 40 percent of anything? It sets a dangerous precedent no matter the income level of those it taxes. An effective tax rate of 45 percent is draconian and prohibitive and has been cited as the highest corporate tax rate of any developed nation in the world. How would such a prohibitive tax increase America’s competitiveness in the global economy? It doesn’t. It merely encourages money-generating entities, corporate or partner, to seek other nations to pay their taxes to. It is greedy policy that is designed to impact a minority of the U.S. population that will in fact widely impact the majority of workers and investors who are counting on investments to fund their children’s education and their own retirement — two issues that most Americans care deeply about.
The corporate tax base is in no danger of collapsing. Policies that seek to chill the investment environment through prohibitive and punitive taxes should be abandoned in favor of policies that reform the tax code to encourage more companies to remain in the U.S., create jobs, pay reasonable taxes and not relocate overseas.
Anne Trenolone serves as Director of Foreign Policy and International Women’s Issues for the Independent Women’s Forum.