Obama's Corporate Tax Reform: Not Progressive Until It's Revenue Positive

We'll be getting more details about the White House's plan for corporate tax reform early this afternoon, but for now I'm still hung up on the basic premise behind their proposals: that America's global competitiveness is somehow damaged by excessively high business tax rates.

Let's just start with the facts -- as we've written before, America's most profitable businesses simply do not pay extraordinarily high rates. According to a much-cited report last fall from the Citizens for Tax Justice, fully 78 of the 280 most profitable U.S. corporations had at least one year between 2008 and 2010 where they paid absolutely nothing in incomes taxes at all. And the average rate paid by these 280 businesses put together comes out to 18.5 percent -- still significantly lower than even the new 28 percent rate proposed by the White House.

If the U.S. is really concerned about global competitiveness, we should think about how our tax revenues from corporations actually compare to other nations. In the chart below, you'll see that corporate taxes make up only 7.1 percent of all taxation in the U.S., significantly below the UK's 10 percent and the OECD average of 10.1 percent. It's hard for me to imagine globally-competive levels of infrastructure or R&D investment in the U.S. as long as we have sub-average taxation on corporate incomes.

What's more, the White House is actually committed to making corporate tax reform "revenue neutral," and this is seen as a bold progressive stance given the preference for revenue-negative tax reform from many on the right. If we know that many of the richest corporations in the U.S. pay next-to-nothing in income taxes, why wouldn't we insist on revenue positive reform? Can't corporations afford the hike?

Yes, they can -- and it's actually the federal government that can't afford reform that is revenue neutral. In 1955, the federal government raised over 27 percent of its revenue from corporate taxes; today, it's below 9 percent. In 1955, corporate tax revenues amounted for 4.3 percent of GDP; today, they account for only 1.3 percent.

Now, it's true that today's record-low revenues from corporate taxes are due in large part to the growth of deductions and exemptions, which Obama plans to limit as part of his reform. But I'm not optimistic: while roll backs on some deductions, like accelerated depreciation, do make it into the proposal, the White House is actually calling for an expansion of other deductions to support certain industries like manufacturing. 

The details of corporate tax reform are going to be devilish, and I imagine that's where most of the debate will center -- but before we get there, shoudn't we stop and figure out what we want more generally from this kind of reform? If it's improved global competitiveness or greater fiscal security, then it seems like we're already headed down the wrong path.

Comments

[spreadoption]

More stupid, counterproductive policy, both economically and politically. It's always puzzling to understand Obama's actions, which always undermine his rhetoric ... until you realize that he's actually a Republican. Then it all makes sense.