US lawmakers are rolling out plans to cut the country’s world-leading corporate tax rates, and big business is saying “not so fast!”
While companies always profess eagerness to see their tax rates cut, the preferred method of doing so in Washington—closing tax loopholes to make up for the cost of lowering rates, an exercise known “as broadening the base”—makes them awful nervous. In all that wheeling and dealing, your sector’s beloved break could be the one that disappears to fund everybody’s low rates.
The biggest break companies fear to disturb is the one that lets them keep nearly $2 trillion in profits overseas. Yesterday, Senator Max Baucus, who chairs the committee that writes tax law, released an initial proposal that would cut the corporate tax rate from 35% to somewhere below 30%, but also replace multinational corporations’ ability to defer taxes on overseas income (or profits shifted overseas) with a global minimum tax one fifth less than the final domestic US rate.
While US Treasury secretary Jack Lew had good things to say about the ideas, trade groups funded by companies that keep money overseas—like General Electric, Cisco and Microsoft—expressed disappointment with the plan, which experts say would put an end to single-digit tax rates on foreign income for companies heavily reliant on intellectual property. Even though Baucus’ plan won’t raise overall tax revenue, doing that while lowering the overall rate effectively requires transfer from multinationals who keep profits out of the tax man’s reach to domestic companies, including telecoms, retailers and defense firms, who are hit by the brunt of the US corporate tax rate.
In Congress’s lower chamber, the chief tax legislator, Rep. Dave Camp, saw business lobbyists go above his head and ask Republican leaders to delay his own tax reform bill. Camp’s proposal follows similar logic to Baucus’ but aims for a much lower tax rate, which would mean closing even more loopholes if it is to be revenue neutral. And, of course, there are Democratic lawmakers who say corporations aren’t providing enough money to public coffers to begin with and believe tax reform should provide a boost in tax revenue.
While a simpler tax code is seen by economists and businesses alike as a boon to the economy, legislators’ focus on brokering a budget deal before next year’s potential government shutdown and debt ceiling imbroglio (yes, another one…) means that this legislation isn’t likely to move forward before the spring. Baucus and Camp could choose to release more details of their proposals and further hone them in an effort to build legislative momentum, but that could lead to more cold feet and angry phone calls from the business lobbyists who care most about this issue.