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Tax reform needs to be about more than a tax cut

  • We only get the chance to rework the tax code every 30 years. We can't blow it with a small, temporary tax cut.
  • Tax reform needs to be permanent.
  • We need to encourage American companies that operate abroad to return their profits to the U.S.
  • Tax reform should be a vehicle to slow the tide of jobs flowing to other countries.

Bill Simon, former CEO, Walmart
Adam Jeffery | CNBC
Bill Simon, former CEO, Walmart

I grew up near Hartford, Conn. There, we made Pratt & Whitney engines and Colt firearms. We were proud of the things our city produced. And if you were lucky enough to work at either factory, you were set.

That pride and job security is missing from too many communities today. The manufacturing sector that powered Hartford's economy, and hundreds of small- and mid-sized cities like it, has been eroding for decades.

A lot of factors contributed to that decline. Our tax code is one of the most overlooked. For decades, our tax system has helped encourage businesses to ship jobs overseas or import products from lower-wage countries, often at the expensive of American workers who produce similar goods.

The American economy is a lot like a puzzle. Government creates the pieces through regulations and the tax code, and business leaders move the pieces around to maximize returns for our shareholders. Too often the solution to that puzzle hurt the workers we need to protect.

"We only get the chance to rework the tax code every 30 years. We shouldn't blow it by passing a small rate cut that expires in a few years."

That is why I was so optimistic earlier this year when tax-writers at both ends of Pennsylvania Avenue promised to correct the code's fundamental preference for foreign workers, not just lower rates.

The initial effort now looks stalled, as policy makers haggle over the details and industry groups marshal opposition to proposals they don't like. That is why I think it is important for Congress and the White House to step back and rally around some shared principles that will make a real difference for American businesses and workers.

First, tax reform needs to be permanent. We only get the chance to rework the tax code every 30 years. We shouldn't blow it by passing a small rate cut that expires in a few years. Businesses need more certainty to make the kind of long-term investments that fuel robust economic growth and sustained job creation.

Second, we need to encourage American companies that operate abroad to return their profits to the U.S. The best way to do that is to stop taxing capital earned in other markets at the same 35 percent rate we apply to business income here in the U.S. We are one of the few developed countries on Earth to discourage companies with a global footprint from investing here in the U.S.

And finally, tax reform should be a vehicle to slow the tide of jobs flowing to other countries. Our existing tax system is an engine to offshore wealth. Americans continue to consume more and more foreign-made products that used to be made here. The migration of those jobs has hollowed out communities throughout the country.

Tax reform is a chance to correct past mistakes, if policy makers create additional incentives for businesses to invest in their workers and their supply chains. That is why I support the House's border adjustment; the proposal seeks to level the playing field for American businesses and their workers. Other ideas can accomplish that goal, but it's the right objective.

I watched this migration of American jobs firsthand as the chief executive officer of Walmart. In the 1980s and 90s, lower labor rates in global markets and $12-a-barrel oil combined with a tax code that rewarded offshore manufacturing resulted in a stampede of manufacturing jobs out of the U.S. Today, the difference in labor costs has diminished and transportation costs have reversed. The math has changed. Our antiquated tax code is the only thing holding back a manufacturing renaissance in the U.S. because it incents the wrong behavior.

These trends are one of the reasons I launched a manufacturing initiative at Walmart to help promote the sourcing of products made here in the U.S. That campaign has been a clear success, and one of the biggest reasons for that success is that it works financially.

Businesses benefit from a shorter supply chain. It takes a lot less time to buy something from a factory across town than it does to buy something from a factory on the other side of the world. At Walmart, we often placed orders a full calendar year before we intended to sell something.

More to the point, investing in the local workforce means people in the community have more money to spend on things they need – and things they want. That would be a huge boon for the retail sector, right at the time when they need it.

But we will never get there, if the conversation centers entirely on what people are against. I acknowledge that retail would be seriously disadvantaged without a careful transition plan. We can figure it out. We must put forward the effort to change or we will continue to slowly decay.

We should take a step back to remind ourselves why we are doing tax reform in the first place. For me, that starts with restoring the pride and security I remember growing up in Hartford when I was a boy, and we made the best guns and airplane engines in the world. Let's bring the jobs back. Let's bring the opportunity back. Let's bring the pride back.

Commentary by William "Bill" Simon, who was president and chief executive officer of Walmart U.S. and executive vice-president of Wal-Mart Stores, Inc. from 2010 to 2014. He was also the treasurer of JEB 2016. Simon currently teaches as an adjunct professor at Baylor University and is a member of the Baylor Board of Regents.

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