IE 11 is not supported. For an optimal experience visit our site on another browser.

A bipartisan fail on tax reform

Obama and a top House Republican say the money raised by closing loopholes should be used to cut the corporate income tax rate. That makes no sense.
U.S. Treasury Secretary Jack Lew holds a press conference to state President Obama's fiscal 2015 federal budget, March 5, 2014.
U.S. Treasury Secretary Jack Lew holds a press conference to state President Obama's fiscal 2015 federal budget, March 5, 2014.

After years-long rancor and bickering over government spending and taxes, President Barack Obama and the Republican Chairman of the House Ways and Means Committee actually agree on something. Admirably, both of them want to close some corporate loopholes.

The president announced his reforms in a budget proposal earlier this week, and Michigan Rep. David Camp announced his tax reform plan last week. Unfortunately, Obama and Camp also agree that every penny raised by closing loopholes should be given right back to big business by cutting the corporate income tax rate. That second point of consensus makes no sense.

Insisting that corporate tax reform should raise no money is bad policy, especially when lawmakers are supposedly so concerned about the deficit that they have cut even those public investments supported by large majorities of Americans, like Head Start and medical research.

To be sure, the president’s proposed reforms would bring in some much-needed revenue from corporations in the short run. He wisely proposes to put that extra revenue to work rebuilding our nation’s infrastructure. But after this brief revenue boost, Obama’s corporate tax proposals would only break even with current law.

Camp’s plan is certainly worse. For one thing, he proposes to let American multinational corporations pay a tax rate of only 1.25 percent on most of their offshore profits. This would just increase incentives for corporations to play games to make their U.S. profits look like they were earned in Bermuda or other tax havens.

For this and other reasons, Camp’s plan would almost certainly reduce corporate tax payments substantially over time.

Obama and Camp have apparently swallowed the myth that the U.S. corporate tax is too burdensome and makes the country “less competitive.”

This premise is totally wrong. My organization, Citizens for Tax Justice, recently released a study finding that most profitable American multinational corporations pay higher effective tax rates in other countries where they do business than they pay in the United States.

When I use the term “effective tax rate,” I’m talking about the percentage of profits a corporation actually pays in income taxes, after accounting for all the loopholes and special breaks they enjoy.

My colleagues and I examined Fortune 500 corporations that were consistently profitable over the previous five years (288 of them were) and found that their average federal effective income tax rate over that period was just 19.4 percent — barely over half the 35 percent rate that corporate lobbyists complain about when they visit lawmakers. A third of these profitable Fortune 500 companies paid less than 10 percent.

Incredibly, 26 of these giant companies, including GE, Boeing, Verizon, Priceline and Corning, paid nothing at all over the five-year period.  Yet these companies had the nerve to testify before Congress in 2012 that they need less onerous tax rules.

 The truth is that U.S. corporate taxes are already low, and for many big companies virtually non-existent. And they’re usually lower than the taxes paid in the foreign countries where our multinationals do business.

All of this dramatically contradicts the conventional wisdom in Washington that American corporations are overtaxed, and reaffirms what the general public knows. Here in the U.S., the game is rigged in favor of the big multinational corporations. We need to fix this problem by making corporate America pay its fair share.

Editor's note: Robert McIntyre is Director of Citizens for Tax Justice, a nonpartisan research and advocacy group that fights for tax fairness.