The Administration’s flawed corporate tax plan

Citizens for Tax Justice (by newsletter):

“The President has proposed to reduce the statutory corporate tax rate from 35 percent to 28 percent, make certain temporary tax breaks, including the research and experimentation credit, permanent, and add some new business tax breaks. In total, these tax cuts would cost us about $1.2 trillion over the next 10 years.

“To offset this cost, the President proposed in his fiscal 2013 budget raise about $0.3 trillion from closing or reducing business tax loopholes. That leaves almost $1 trillion in further business tax reforms that would be necessary for the tax plan to break even, as the President say he wants to do. His ‘framework,’ however, leaves the sources of this $0.9 trillion in offsetting reforms mostly unspecified.

“We can and should collect more tax revenue from corporations. Right now, America’s biggest and most profitable corporations are paying, on average, a ridiculously low amount in federal income taxes, and many of them are paying nothing at all.

Why higher rates are fair:

■ A 2007 report from the Bush Treasury Department found “the United States takes a below average share of corporate income in taxes” compared to other developed countries.

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■ Some corporate profits are not taxed at all. …
■ Corporate profits paid out as stock dividends are usually not taxed under the personal income tax because two thirds of those dividends go to tax-exempt entities like retirement plans and university endowments.
■ Even dividends received directly by individuals are not taxed as much as wages that are the only income for most middle-class families. Stock dividends are currently taxed at a top rate of just 15 percent, and they are not subject to the Social Security payroll taxes that apply to the wages earned by working people.
■ Corporate income taxes, when they are paid, are ultimately borne by corporate
shareholders in the form of reduced stock dividends.

International reforms are needed:

■ Corporations are lobbying Congress to exempt their offshore profits from U.S. corporate income taxes…
■ Instead, Congress should end the tax break that caused many of those corporate profits to be shifted overseas in the first place — the rule allowing U.S. corporations to “defer” U.S. taxes on their offshore profits…
■ “Deferral” means that U.S. corporations may pay lower taxes indefinitely if they move operations and jobs to a low-tax country or just make their U.S. profits appear to be generated in a low-tax country. In other words, deferral can encourage job offshoring and profit shifting to tax havens.
…
■ …In fact, between 1999 and 2008, U.S.
multinational corporations created 2.4 million foreign jobs while reducing their U.S. workforce by 1.9 million positions.
…
■ Another temporary tax amnesty for repatriated offshore corporate profits would increase incentives for job offshoring and offshore profit shifting in similar ways. One reason why the Joint Committee on Taxation concluded that a repeat of the 2004 “repatriation holiday” would cost $79 billion over ten years is the likelihood that many U.S. corporations would respond by shifting even more investments offshore in the belief that Congress will call off most of the U.S. taxes on those profits again in the future by
enacting more “holidays.”
■ The Congressional Research Service concluded that the offshore profits repatriated under the 2004 tax amnesty went to corporate shareholders and not towards job creation. In fact, many of the companies that benefited the most actually reduced their U.S. workforces.