Taxes are one of the topics at the front of the populist American agenda. They seem to be an issue of partisanship, with one side decrying the other as elitist, reciprocated by allegations of socialism. The issue is one which is starkly divisive, and since taxes affect everyone and everything, it is important we get it right.
This fact in mind, let me first address what I am not saying: I am not saying corporations who pay their fair share of taxes should be taxed more. America has one of the highest corporate tax rates on the planet. According to the international auditing service provider KPMG, the United States has a corporate tax rate of 40 percent, and it has been at this level since 2006 at the latest. Domestic corporations who pay this 40 percent rate on an ethical basis are not the corporations in question.
In fact, I will even concede a conversation about lowering the highest corporate tax rate in the world should be had. Although given our current situation inside the Beltway, it does not look as though such an oh, so necessary conversation will take place any time soon.
The issue from where I stand is not that the rate should be heightened, but rather restrictions should be tightened. For all the corporations with holdings in overseas markets simply for the sake of circumventing taxes, corporate tax rates and practices should be reformed. My concern is about these corporations who do not deal in good faith. Of course — this statement presupposes ethical and moral dealings —those in good faith are ones that obey the spirit of tax law. In a capitalist society, this presupposition may be debated. It may be argued, albeit in my opinion poorly so, right dealings in good faith are those that will maximize the financial bottom line. This is disagreeable in every way.
Jeff Cox of CNBC estimates the amount of money sheltered offshore is at least $2 trillion. Just to put this incredibly vast amount in perspective, the United States as a nation spent just under $4 trillion in fiscal year 2014, according to The Washington Post. Over half of a year’s worth of spending was, or is, held in various tax shelters around the world.
Cox makes an interesting point: “The White House and Republicans agree that revenue gained by limiting corporate tax breaks should be used to lower corporate tax rates.” Perhaps this is the foundation of bipartisan corporate tax reform?
Yet another foundational point in the case for reform is the necessity of domestic holdings. Cox notes bringing this money home has two benefits: getting some cash domestically that could help catalyze the economy and “ending the rash of so-called inversions in which companies do deals that allow them to establish domiciles in lower-tax countries.”
Closing these tax loopholes for multinational corporations is critical for the success of our nation’s economy. Stricter tax regulations are also necessary for deficit reduction, an issue many of us are all too familiar with. Robert Bixby, executive director of The Concord Coalition, wrote in a December article about lawmakers who were “focusing on renewing several expired tax provisions, mainly benefiting businesses, without offsetting the lost revenue.”
Bixby goes on to note the blow that such legislation would deliver to deficit reduction efforts.
“If [lawmakers] truly believe that the tax provisions are important enough to pass, they should consider them important enough to pay for as well,” Bixby said.
The case for corporate tax reform is strong. It is needed both desperately and quickly. Tighter restrictions on overseas holdings will ideally produce both economic vibrancy and deficit reduction.
