IRS code holding us back

Americans love to compete and win. That’s why we love the Olympics, and that’s why this campaign is about how South Carolina can best compete and create jobs in a global economy. In Athens and Aiken, Americans aren’t interested in coming in second to the international competition.

Today, nothing hinders the ability of our companies and workers to compete in the global arena more than the IRS tax code. If the economy were a race, asking our companies and workers to deal with the IRS code would be like requiring our athletes to carry a set of encyclopedias as they run.

America still has the largest and most powerful economy in the world, but we are losing our competitive edge. Nine countries including Hong Kong, Singapore, Denmark, the United Kingdom and Ireland rank higher than the United States on a scale of economic freedom published by the Heritage Foundation and The Wall Street Journal. The United States now ranks 107th out of 161 countries in terms of our corporate tax burden, behind the Swiss and Estonians.

The IRS tax code is like a large billboard on our shores that says, “Go do business elsewhere.” In 1960, 90 percent of the world’s largest corporations were based in the United States.  Today, fewer than half of those companies call the United States home.

One executive with Daimler-Chrysler had this to say about our tax code: “When it came to the choice of whether the new company should be a U.S. company or a German company, the U.S. tax system put Chrysler at a decisive disadvantage.”

The vice president for taxes at Intel Corp. offered a similar opinion: “If I had known at Intel’s founding what I know today about the international tax rules, I would have advised that the parent company be established outside of the U.S.... the degree to which our tax code intrudes upon business decision-making is unparalleled in the world.... other countries do not have such complex rules.”

Of course, the group that suffers the most because of our backward tax code is not executives but ordinary workers. Business owners pass along the burden of high tax rates in unseen ways. Every product we buy — a new television, pair of shoes or gallon of milk — carries with it an embedded tax of 20 percent to 25 percent. 

To make matters worse, these additional costs apply to products we are trying to sell overseas. Our competitors, by and large, have realized this is a bad way to do business and drop these additional costs off at the border. The United States, however, puts products on the global market that have a 20 percent to 25 percent markup in price.

One solution I have long advocated is the complete repeal and overhaul of the IRS tax code.  My legislation, “Tax Reform Action Commission (TRAC) Act,” H.R. 3215, which has 118 cosponsors, would create an independent panel of experts who would be charged with developing a new tax code that would help us compete.

Other factors are slowing down our companies, such as frivolous lawsuits, runaway government spending and excessive regulation, but the IRS tax code is our main challenge. I’m encouraged that both Speaker of the House Dennis Hastert and President Bush are now calling for the complete replacement of our tax code. President Bush tends to favor a national sales tax, and I agree, but the most important step is to move the debate forward and force Congress to act.

For too long, politicians have ignored the issues that have the greatest impact on our ability to compete. In campaigns, we tend to spend most of our time debating the rules governing the competition, i.e. trade deals. Rules are important in athletic and economic competition and need to be enforced. However, it is foolish to ignore the factors that are needlessly compromising our overall fitness and ability to run as fast as we can.

The fact that South Carolinians understand is that global trade and competition, like the Olympics, will occur whether we participate or not. Our goal should be to compete well in as many areas as possible, not to call for moratoriums and take our ball and go home if we don’t like the rules. 

I’m proud of what I’ve done in Congress to make the rules fair for our companies, but that is less than half of the battle. It’s time for Congress to take the obvious steps we need to take to not only run, but run to win. Helping our companies and workers drop the enormous burden of our tax code is a vital first step.

Rep. DeMint is the Republican nominee for U.S. Senate. His Web site is http://www.jimdemint.com/.