Late last month, a federal judge prevented a financial burden that was about to be thrust on the backs of America’s businesses …
U.S. District Judge Amos L. Mazzant III in Sherman, Texas, put a halt to the Department of Labor’s new overtime rule. He said the rule exceeded the authority Congress had delegated to the agency.
The change in the “white collar exemption” would have more than doubled the current income level under which salaried workers must be paid overtime — from $23,660 to $47,476.
That threshold was to readjust every three years to reflect increases in average wages. And it would have made an additional 3.9 million American workers eligible for time-and-a-half pay if they worked more than 40 hours a week as we head into the holiday season.
The Congressional Budget Office (CBO) estimated the potential impact this might have had over the next seven years. They reported that:
Businesses would have seen compliance costs increase by $6.9 billion.
Family incomes would have been reduced by $8.5 billion.
Consumers would have paid $6.9 billion more for their purchases.
The CBO’s report found that, although employee earnings would rise by $2.7 billion, employers would compensate by reducing base pay or converting salaried employees into hourly workers to skirt higher costs.
That’s what happened when IBM reclassified 7,000 salaried and technical-support workers as overtime-eligible in a lawsuit settlement. It also cut their base pay by 15%, leaving total earnings unaffected.
Small businesses could have been especially hurt …
Karen Kerrigan, president and CEO of the Small Business & Entrepreneurship Council, issued a statement,
“The Department of Labor got this final rule terribly wrong, and the harsh consequences were about to fall directly on small businesses and their dedicated employees.
“Small businesses told the DOL exactly how it would affect them and the burdens it would impose. They choose to ignore their plight and concerns. We are glad the court will give this rule the fair hearing it never received from DOL regulators.”
Businesses across the country are breathing a sigh of relief. And so are some members of Congress. The rule was set to take effect on Dec. 1, but the judge’s injunction means the Trump administration could cancel the overtime rule before it is ever implemented.
And if Trump cancels it, businesses, families and consumers across the country will reap benefits.
Yet there is more that must be done …
Current tax system stifles economic freedom
The current tax code is preventing our economy from being as vibrant and prosperous as it could be. And Congress has glutted it with politically motivated credits, deductions and exemptions.
The U.S. has the highest corporate tax rate in the developed world — 39%, consisting of 35% federal and 4% average state rates — far exceeding the Organization for Economic Cooperation and Development (OECD) average by nearly 15%. And that expense hinders our competitiveness in the global economy.
President-elect Trump has vowed to reduce the burden to 15% and modify the corporate income tax base. But considering how Congress drags its feet, that could take time.
Besides cutting the corporate tax rate, there are other changes Trump and the incoming 115th Congress could make to create jobs, raise wages, and increase the opportunity for businesses — small and large — to compete worldwide.
Here are three that could make a “yuge” difference …
Change #1 — Eliminate depreciation
All businesses should be allowed to immediately deduct the full cost of machinery, equipment, plants and other productive assets.
The way it works now, they might have to wait as long as 39 years to deduct the cost of purchasing investment property. And that capital cost recovery system is much worse than the OECD average, according to the Tax Foundation.
Such treatment of capital expenses understates true business costs and overstates taxable income. This effect becomes exaggerated as the depreciation schedule lengthens and the rate of inflation grows.
This raises the cost of capital and reduces investment. Which in turn reduces worker productivity and wages … while harming the competitiveness of U.S. businesses.
Change #2 — Eliminate tax on foreign income
The U.S. is the only major developed country that taxes its businesses on income earned abroad. So, it’s no surprise that some of our largest companies have corporate operations overseas where they receive a more-favorable tax rate.
Add up the numbers and you’ll see these 10 corporations alone have more than $477 billion in untaxed cash stored outside the United States. They might have paid local taxes in whatever country they earned it, but they haven’t paid the IRS anything.
I expect companies to do whatever they can (legally) to minimize tax expenses. The real problem is that U.S. tax policy forces them to make economically irrational decisions.
Apple CEO Tim Cook said this in a Washington Post interview, when asked about his company’s untaxed profits that are sitting in a foreign country:
“We are the largest taxpayer in the United States. And so we’re not a tax dodger. We pay our share and then some.
“The tax law right now says we can keep that in Ireland or we can bring it back. And when we bring it back, we will pay 35 percent federal tax and then a weighted average across the states that we’re in, which is about 5 percent, so think of it as 40 percent. We’ve said at 40 percent, we’re not going to bring it back until there’s a fair rate.”
In the end, that isn’t good for anyone.
“ … we’re not a tax dodger. We pay our share and then some.” — Tim Cook, Apple CEO
Eliminating tax on foreign income would reduce the incentive for U.S. companies to move overseas or merge with foreign corporations — as happened in 2014 with the mass number of inversions. American jobs would be saved, and profits reinvested in our country.
Clearly a win-win for America’s workers … company shareholders … and our economy.
Change #3 — A shift toward a consumption tax
Taxing imports would further discourage companies from moving abroad. But rather than complicated tariffs, an easier way to accomplish that is with a consumption tax, which taxes goods where they are consumed rather than where they are produced.
What’s more, why should the government decide what’s fair?
A consumption tax puts you in charge of your finances … not the government, and not the IRS. Plus, it excludes income from savings and investments.
Reform the way government taxes businesses
Simply put …
Lowering the corporate tax rate … replacing the cumbersome depreciation system … dropping the worldwide tax … and implementing a consumption tax would be a boon to our economy and put us on the path to fiscal stability.
If you agree, write your Representative and Senators. Tell them that changes are sorely needed. Reforming the way government taxes businesses is about making America a place where domestic and foreign businesses can invest, grow and prosper while supporting jobs right here at home.