Corporate tax rates and a busy lame duck session
Since Japan lowered its rate last April, our corporate tax rate has been the highest in the world. There is no disagreement in Washington, believe it or not, that a 35% rate is too high.
What complicates things is that very few if any corporations actually pay that rate. In fact, there are some striking examples (including General Electric in 2010, on profits of $5.1 billion) of giant corporations paying little or no tax at all. The recent report about Apple using exotic tax strategies to keep its federal tax obligations low also raised more than a few eyebrows.
The Congressional Budget Office recently reported that in 2011 total corporate taxes paid to the federal government fell to 12.1% of profits earned in the U.S. That is the lowest rate since 1972 and far less than the 25.6% average rate paid from 1987 to 2008.
So are our corporations taxed too much? There is certainly partisan disagreement about that, but nearly everybody agrees that while the rate should be lowered we also have to eliminate, reform, or simplify all the tax loopholes, credits, and deductions that clutter and confuse corporate tax returns just as they do our personal returns.
Of course, one man’s loophole is another man’s justifiable incentive. So agreement that something should be done to simplify the code doesn’t mean there will be bipartisan support for specific legislation. The devil is always in the details, and when the details mean plus or minus billions of dollars to powerful interest groups, you can bet the infighting will be fierce and prolonged.
Not many people believe that all incentives should be eliminated. There have been a number of bipartisan bills passed that give tax incentives to corporations and especially small businesses to encourage them to create jobs.
Both presidential candidates this year have put forth proposals to reduce the corporate federal tax rate. In February, President Obama proposed reducing the rate to 28 percent; cutting special tax loopholes for industries; providing incentives to encourage domestically based manufacturing, cutting taxes on investments by small businesses; and reducing tax deductions that encourage companies to send money out of the U.S.
Governor Romney would cut corporate taxes by reducing the tax rate to 25 percent; strengthening and making permanent the research and development tax credit; switching to a territorial tax system (taxing domestic but not foreign income); and repealing the corporate Alternative Minimum Tax.
Many decisions about corporate tax reform are nearly certain to be made before a president is inaugurated and a new Congress is convened in January 2013. That’s because of the unprecedented deadlines we face before then — increasing the debt limit, deciding what to do about the Bush tax cuts that expire on December 31, and resolving the impasse on the federal budget. The lame duck Congress that will be in session after November’s election will have to act because the failure to deal with these issues before the end of the year is simply not an option. To do so, according to Federal Reserve Chair Ben Bernanke, would create a fiscal cliff that the economy could not withstand.
While most Americans are focusing only on the November election, Washington lobbyists are gearing up for what will happen during the lame duck session before December 31. Major corporations such as Boeing, Intel, AT&T, Capital One, Caremark, Home Depot, Nike and Macy’s have formed a coalition called RATE to make sure they influence any reform of the corporate tax code. The Business Roundtable has already launched a public relations media campaign. Most lobbying firms are telling their employees that vacations are to be taken before the fall. It looks like this fall will be the busiest and most profitable season for lobbyists in recent memory.
Changes in the corporate tax rate will affect all of us. They will determine tax revenues available to help bring the budget deficit under control; encourage new innovations, research and development; create jobs in the United States; and improve our competitiveness overseas. There is no question that our major corporations will have their say in the process. I hope that a lot of other voices from across America are heard as well.
Originally published 7th May 2012 on huffingtonpost.com