Tax Reform Proposal Misses the Mark

The Bay Area Council is a nonprofit nonpartisan public policy organization that represents many of the largest employers in the Silicon Valley/Bay Area region and advocates for a strong, growing and sustainable economy. Our member companies come from a wide range of industries, including technology, healthcare, transportation, energy and business services, among many others. The Bay Area is one of the most innovative and economically productive regions in the country, if not the world, and has been one of the nation’s leading job creators (both in our region and across the United States) over the past decade and a major contributor to the United States’ federal budget.

We are encouraged that Congress is taking on the much needed and long overdue work of reforming the U.S. tax code in an effort to spur economic growth and increase our competitiveness globally. Many aspects of current U.S. tax code put our employers at a disadvantage against competitors abroad and discourage greater investment domestically.  While there is still much uncertainty about what changes will ultimately be included in any final tax reform package, our initial analysis finds that there are elements that potentially will have positive effects on our region and also extremely negative impacts.

The current proposal to reduce the corporate tax rate from 35 percent to 20 percent could have important upsides for many of our employers that compete in a world economy where the trade-weighted average stands at 27.9 percent. Plans to lower the tax rate on repatriated corporate profits could also help bring a significant infusion of investment to the U.S. to expand manufacturing, increase capital equipment purchasing, and support important job training programs. However, we strongly recommend adding provisions on repatriation that will ensure these funds are directed to just those kinds of productive investments.

At the same time, a number of the proposed changes will have severely detrimental impacts on the employees of our member companies in our region and across California, which is arguably one of the nation’s most important economic and job engines.  Elimination of the property tax deduction and lowering of the mortgage interest deduction cap would dramatically exacerbate our region’s crisis-level housing affordability problem.  High housing costs already make it difficult for employers here and in many regions in California to attract and retain the top talent they need to compete and grow (especially middle-class workers).  The elimination of the state and local tax deduction would have a similarly negative effect.  And the proposed elimination of tax-exempt public activity bonds would hurt our ability to make critical investments in housing, transportation and other vital infrastructure. We also are very concerned about the last-minute proposal to include the elimination of the individual health insurance mandate, which we believe will result in increased premiums for employers.

As the debate over the tax reform package continues, the Bay Area Council asks you to change the package to eliminate the changes that will negatively impact California employees and our state’s ability to compete globally.  Any tax reform should strive to be fair to all Americans, and as currently constructed, this package misses the mark.

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