Beware Anything Called Corporate Tax “Reform”

Dave Johnson

Corporate tax policy involves a lot of complicated accounting language, so people tend to tune out. But you should pay attention because there is big money involved – really, really big money that could be used for roads, courts, schools, health care and all the other things government does to make our economy and our lives better.

Tax policy is one of those subjects that most people ignore. Lots of the work is done behind the scenes. Lobbyists own the process, so any reform means those with the biggest lobbyist budget come out ahead. The huge tax breaks tend to sneak through while people are not paying attention, and then we find out that the money is gone. The lobbying world knows how to game this system and a round of tax-game playoffs is about to begin.

The Next Corporate Tax Fight Is Called “Tax Extenders”

The next big fight is about “tax extenders.” These are “temporary” tax breaks that expire, and if the corporations want to keep them (they do) Congress has to extend them for another year or two. So every year or two a whole package of these comes up for a vote, and Congress does its duty and extends these breaks.

All kinds of things get thrown in to get votes, so the only way to get, for example, a small tax credit for wind energy, you have to vote for an unbelievably whopping huge massive tax break for a giant multinational corporation – usually but not limited to GE. (Goldman Sachs and Citigroup, too.)

Right now Congress is getting ready to extend 55 tax breaks worth up to $700 billion over 10 years. Two of these are the “active financing exception” and the “CFC look-through rule.” Corporations use these to make it appear as if profits they made here were really made in offshore tax havens. They can then take advantage of the deferral loophole that lets them keep from paying taxes on money made outside the country until they “bring the money home.” These loopholes cost Americans $80 billion in lost tax revenue over 10 years.

I’ve been writing a lot about the huge “deferral” break that corporations get if they move jobs, factories and profit centers out of the country. The deferral loophole has caused corporations to keep up to $2 trillion out of the country. That means they have dodged as much as $700 billion in taxes that we could collect right now if we did something about this. This soon-coming “extenders” fight is a different fight.

Americans for Tax Fairness has a great page explaining the tax extenders issue. Go take a look. They have this to say about what Congress needs to do:

  1. Stop giving tax breaks to corporations that move profits and jobs offshore, starting with eliminating the Active Financing Exception and the CFC look-through rule.
  2. Pay for other corporate tax extenders by closing other corporate tax loopholes.

If Congress requires emergency unemployment benefits to be paid for, the least it should do is require corporate tax breaks to be paid for.

After Extenders Is Corporate Tax “Reform”

“Reform” is a nice-sounding word, but it can bite. There are several proposals being discussed behind the scenes in Congress right now to “reform” the corporate tax code. Surprisingly (HA!) not one of them involves asking corporations to pay the taxes they owe now, and to pay more in taxes in the future so we can invest in our economy and our people.

Most of the proposals promise to “close loopholes” but then give all corporations a lower tax rate. Some of them would let corporations off the hook for the taxes they owe but have deferred as a result of shifting U.S. profits out of the country. Some of them would mean that corporations wouldn’t ever pay taxes on money made outside the country, which would encourage companies to move jobs, factories, call centers and other production and profit centers out of the country.

But get ready for this. The chairman of the House Ways and Means committee is pushing to make several of the “temporary” tax breaks that come up in the “tax extenders” bill permanent. But at the same time he is also one of the advocates of closing loopholes to make the corporate tax lower. So how does making loopholes permanent close loopholes? The Wall Street Journal explains in “Tax Rewrite Shifts to Fixing the ‘Extenders’ Problem”:

Ways and Means Chairman Dave Camp is shifting gears on his top-to-bottom rewrite of the tax code, proposing to start by permanently extending some temporary tax breaks.

In a memo on Monday, Mr. Camp told committee members he plans to move forward next month with the permanent extensions of temporary tax breaks, as a way of achieving “incremental progress towards full reform.”

Here’s what this might be about. He is proposing making these already-expiring loopholes permanent, so they can maybe get rid of them and say this justifies cutting corporate taxes. This gives you an idea of the kind of back-room antics that go on. Don’t let this sneak through.

Past Reforms

Corporate taxes have been reformed over the years. This is a chart of corporate taxes over time, as a percent of GDP:

The first chart tells you that something has been going on as corporate taxes get “reformed.” They have been going down and down and down. But the government’s need for money to build roads, run courts and especially to pay for a fantastically huge, world-spanning military machine have been going up. So who made up for the share that corporate taxes used to cover?

This second chart shows who pays what share of all federal tax revenue that gets collected. Another way of saying this is who pays what share of the country’s “tax burden.” The chart shows that the individual income tax share of all taxes stayed roughly the same, the corporate tax share went down, but payroll taxes – only paid by incomes below $113,700 today – went up.

One more thing. About all those corporate tax cuts – look whose taxes we are really talking about. When you hear about corporations getting a tax cut, think about this chart:

wealth2

The top 1 percent own 50.9 percent of all stocks, bonds, and mutual fund assets. The top 10 percent own 90.3 percent.

Also see “While Tax-Evading Corporations Paid Only 12.6%, We Cut Schools.” You will find a number of great videos and charts. Who doesn’t like charts?

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