President Obama’s top economic advisor on Thursday said that Republican insistence on eliminating the estate tax shows that the Democrats and the GOP remain “far apart” on reforming the personal income tax code. However, he held out hope for change on the way businesses are taxed, citing widespread agreement on the need to change a system he described as “the worst of all worlds.”
Speaking at The Atlantic’s “Summit on the Economy” in Washington, Jason Furman, who chairs the President’s Council of Economic Advisers, said he has seen “a very constructive set of discussions on the business side of tax reform. I think we really do agree. “
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Furman said that Republicans and Democrats are on the same page when it comes to the major features of an overhaul of the corporate income tax.
“I think there’s a real area that we should be able to work together on here that would be good for our economy, that wouldn’t hurt our budget deficit,” he said.
According to Furman, there is agreement on:
- Setting a rate lower than the current 35 percent
- Removing myriad loopholes companies currently exploit to avoid paying taxes
- Moving toward a hybrid tax system that still captures some revenue from companies’ overseas business but doesn’t treat it as domestic income
- Using the revenue gained in transition to fund the country’s crumbling infrastructure
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“The United States has fallen so out of step with the rest of the world,” Furman said, referring specifically to the way the U.S. taxes business income. “We have the highest tax rate of any economy in the world. I think that’s widely understood, and its widely understood why that’s a problem.”
Additionally, he said, “There are features of our tax code, such as the way we tax international income, which are the worst of all worlds. We collect very little revenue and we create a lot of distortions.”
A new system, he said, could be made to “create less distortion with a lot more flexibility and also collect more revenue.”
Furman was far less sanguine about the prospects for reforming the personal income tax code, saying that discussions about business and personal tax reform are occurring in “two worlds.”
Related: The Compelling Case for a Lower Capital Gains Tax Rate
On the personal income tax side, he said, “You have the world where the Republicans decide the top priority is repealing the estate tax, which would benefit 5,400 households a year by millions of dollars and would cost hundreds of billions of dollars over the next decade.”
The elimination of the estate tax, he pointed out, is not contemplated in the budget passed by the House and Senate and would therefore increase the national debt.
Republicans have long hated the estate tax, arguing that it amounts to unfair double taxation of wealth that was taxed when it was earned. They also argue that the estate tax makes it difficult or impossible for family businesses that are asset-rich but cash poor, like family farms, to be passed on to the next generation.
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