Budget talks begin today in Washington; in the after-the-storm atmosphere of the nation’s capitol, there’s a rare opportunity to make significant changes to the way our government taxes and spends.
One possibility is a cut in the corporate tax rate, a goal that both Republicans and Democrats should recognize as worthy and viable.
The National Journal reports that the “chasm between competing budget plans will be difficult to bridge,” because at least at the start, corporate tax reform isn’t on the list of Democratic priorities.
“The House budget proposal calls for revenue-neutral tax reforms relative to the CBO baseline, such as repealing the alternative minimum tax and reducing the corporate tax rate,” the Journal says. “About half of the Senate’s planned deficit reduction over 10 years — $975 billion — would come from new revenues, mostly from corporations and wealthy households.”
Now here’s the interesting part: Those corporate tax positions are not competing goals. Reforming the corporate tax system — eliminating some loopholes, simplifying the system, and lowering the rates — can achieve both those things. We can lower the rate and bring in more revenue.
First, we should lower the rate.
“The corporate income tax rate, currently 35 percent, has been recognized as internationally uncompetitive,” notes The Hill newspaper. “A recent report on business taxation and global competitiveness from the Treasury Department found that, within the Organization for Economic Cooperation and Development, the United States has the second highest corporate income tax rate.”
President Barack Obama agrees.
“Our current corporate tax system is outdated, unfair, and inefficient,” he said during the 2013 campaign. “It ... hits companies that choose to stay in America with one of the highest tax rates in the world. It is unnecessarily complicated and forces America’s small businesses to spend countless hours and dollars filing their taxes. It’s not right, and it needs to change.”
And as the good Dr. Art Laffer reminds us, capital is mobile. High taxes drive away taxpayers. Apple uses tax havens to avoid paying taxes on $148 billion in income — legally.
“Apple is not alone,” The Hill adds. “Firms who have employed similar tactics include Google, Yahoo, Cisco, Microsoft, Hewlett-Packard, eBay, Amazon, GE, Verizon, Boeing, Exxon Mobil, Kraft Foods, Citigroup, IBM, Chevron, FedEx, American Airlines, J.C. Penney, Bank of America, General Motors, Nike, Dell and American Express, among others.”
The fact they’re all doing within the law is an argument for changing the law. More reasonable tax rates would bring more of that revenue home.
But lowering the rate is just the start — a revenue-neutral start. We can increase revenues by broadening the tax base.
Congress can eliminate “tax expenditures,” a Washington term for “provisions of the tax laws that allow a special exclusion, exemption, credit, deduction, preferential rate of tax, or deferral of tax liability,” The Hill explains.
“In fiscal year 2013, the Joint Committee on Taxation estimates that corporate tax expenditures accounted for $150 billion,” it says.
Both sides can get what they want here. And Congress can do the right thing.