On Thursday April 11, 2013, the Taxpayers Protection Alliance submitted comments to the House Committee on Ways and Means Tax Reform Working Groups urging a lowering of the corporate tax rate. On April 1, 2013, the U.S. celebrated a somber anniversary, having the highest corporate tax rate amongst OECD nations. Social welfare states have spent the last few decades actively cutting their corporate rate to boost their economies. In fact, Sweden recently announced plans to cut its rate from 26.3% to 22%. If enacted, this rate would be a full 13 percentage points lower than that rate paid by U.S. companies. While some falsely claim that no U.S. businesses pay the corporate tax rate, our statutory rate is already having a negative impact on wages and the economy. According to a new study, U.S. GDP will be between 1.2 percent and 2.0 percent smaller in 2013 because of our 35% statutory tax rate. The tax rate also deters foreign countries from investing in the United States while at the same time encouraging U.S. companies to relocate. From 2000 to 2011, the U.S. lost a net of 46 Fortune Global 500 company headquarters to other, lower-tax countries in Europe and Asia. Tax reform is long overdue and this opportunity must not be wasted.
Today may be April Fools’ Day, but not everything that happens today is a joke. And as great as it would be to say that the topic this blog discusses is a joke, it’s not. Just like last year, the first day of April is once again greeted with the somber reality that the United States has the highest corporate tax rate. Although today marks the one year anniversary of this unwanted distinction, they’ll be no celebrating in taxpayer circles. On April 1, 2012, Japan lowered its corporate tax rate to 36.8 percent from 39.8 percent; this left the “United States with the highest effective rate among developed countries: 39.2 percent.” A US News and World Report piece dated April 2, 2012 explained the issue well in its opening paragraph. It reads “United States-based companies and hardworking Americans face a steadily growing problem, one oddly self-imposed by Uncle Sam. Our current tax system puts businesses and workers at a competitive disadvantage in the global market and discourages companies from investing in operations here at home.” This first place designation is not one the U.S. should want to retain. In addition to harming U.S. companies, there are other tangible harms inflicted upon our nation’s economy. As the Daily Caller reported, “between 2000 and 2011, the U.S. experienced a net loss of 46 Fortune Global 500 company headquarters, according to a report by Ernst and Young.”
For once Washington takes a step in the right direction, but keep your excitement reserved. Much remains to be seen about just how far House Speaker John Boehner’s efforts to reform our tax code will actually go but credit should be given to Speaker Boehner who took the first step towards making this happen when he announced that “he will push major reform of the tax code by reserving pole position — H.R. 1 — for that massive legislative undertaking. Again, don’t get too excited or think the battle is over yet. The troops haven’t even gotten on the ground yet. The Hill article reminds us of a very important fact: “Designating tax reform as H.R. 1 far from ensures that it will become law this year, or even that it will make its way through the House.” While this is certainly true, this reality calls all pro-taxpayer groups to join together and keep Boehner to his promise. There’s much to undertake when it comes to crafting a good, extensive restructuring of our current, disastrous, burdensome tax code, but the fact is you can’t begin to have a conversation until the subject is at the very least on the table. And that’s what Speaker Boehner has done. Now let’s just hope this symbolic gesture moves beyond a sheet of paper and prompts action on a significant under-hauling of our nation’s tax code. In an attempt to encourage Congressional action on this issue, Taxpayers Protection Alliance suggests that one area of tax reform that should get particular attention is corporate tax reform.
Tonight was President Obama’s fourth State of The Union (SOTU) address (2009 was technically just a speech before a joint session of Congress, not a State of The Union). Just as in previous SOTU’s by President Obama, and former President’s, there is quite a lot to digest. As you can imagine, the Taxpayers Protection Alliance (TPA) listened intently as the President talked more about his spending and taxation plans for the year. An article in The Hill earlier today gave us a sneak preview of what to expect, “President Obama will use his State of the Union speech Tuesday to turn public opinion against automatic spending cuts and argue that some of the money to replace the cuts should instead come from higher taxes. He will use the prime-time TV address to argue the economy would be damaged if $85 billion in automatic spending cuts were to go ahead on schedule on March 1, and will seek to set up Republicans to take the blame if they do.” Well, President Obama kept true to his word. He railed against the sequester (automatic spending cuts), asked for more revenue, and called for additional spending. The trifecta of what not to do considering that the nation is $16.5 trillion in debt and the deficit this year will eclipse the $800 billion mark.
In the culmination of the fiscal cliff talks and despite what politicians said, taxes increased for all working Americans. Now is the time for all taxpayers to join together and seize the opportunity to pursue the long overdue reform to our nation’s tax code. Fortunately, some members of Congress agree and understand the need for change. In a Politico op-ed from last week, Senator Rob Portman (R-Ohio) wrote, “Our tax code has become an obstacle to growth, and only a robust, growing economy can create the new jobs (and future tax revenues) that we need.” Senator Portman also stated that, “Since 2001, taxes on everything from salaries and small business income to investment earnings and gifts have been temporary — a source of economic uncertainty and perennial fiscal fights. New permanent rates create a clear starting point for tax reform and end disputes over the baseline that have vexed past reform attempts.” Another problem with the shenanigans of the past several years is the significant uncertainty Washington’s game playing imposes on businesses. With so many unknowns, businesses are cautious about making large investments (and creating new jobs in the process) for future gains because they lack any assurance that Congress won’t change the tax rates with its next whim.
Earlier this week, the Taxpayers Protection Alliance highlighted the devastating effect of the increase in dividend taxes (read here) if the country goes over the Fiscal Cliff. Today, as a bonus tax blog, TPA wants to reiterate the importance of including corporate tax rate reform in discussions surrounding the Fiscal Cliff. On April 1, 2012, the United States had the dubious distinction of becoming the country with the highest corporate tax rate. As Congress talks about tax reform as part of the Fiscal Cliff discussions, lowering the corporate tax rate should be at the top of the list. According to an April 4, 2012 op-ed in Reuters by Elaine Kamarck and James P. Pinkerton, “The U.S. in the dubious position of being number one in anti-competitiveness with a current combined rate of 39.2 percent. . . . combined corporate tax rate, and federal rate at 35 percent, leaves us in a weaker position relative to other leading economies.” In February, Treasury Secretary Timothy Geithner proposed a plan to reduce the corporate tax rate to 28 percent and House Republicans have proposed a rate of 25 percent. Unfortunately, policy makers in Washington are not the only ones paying attention as Kamarck and Pinkerton point out our competitors are also taking notice, “Over the last 20 years, America’s competitors have lowered their top corporate rates to levels as low as 12.5 percent and 8.5 percent in the cases of Ireland and Switzerland, while the U.S. has not.” Now, a new letter from the Chief Executive Officers of 17 of the largest U.S. companies, members of the RATE Coalition , sent a letter to lawmakers looking for a “reduction of the corporate tax rate as part of any wide-ranging corporate tax reform.” Read the full letter here.
There is no denying that the federal tax code is complicated. What many people don’t know is that real tax reform can be difficult as legislation gets bogged down in technical hurdles. To address this problem, Rules Committee Chairman David Dreier (R-Calif.) and Ways and Means Committee Chairman Dave Camp (R-Mich.) introduced The Pathway to Job Creation through a Simpler, Fairer Tax Code Act of 2012 (H.R. 6169), which will “provide a clear pathway to comprehensive tax reforms in 2013. By implementing expedited procedures, this bill will enable lawmakers in both the House and Senate to overcome multiple technical hurdles that often cause bills to languish during the legislative process. ‘The United States tax code is far too complex and bloated. It forces American citizens and small business owners to focus on filling out tax forms instead of tending to their families and businesses. It is clear to lawmakers on both sides of the aisle that real, fundamental reforms to our tax code are long overdue. In fact, our revenue laws have not been substantially reformed in 50 years,’ Chairman Dreier said.” The Taxpayers Protection Alliance proudly supports this legislation.
Today President Obama implored Congressto extend the 2001 and 2003 tax cuts for the middle class, while simultaneously asking for a tax increase on small business owners and others – the very group our nation relies on to create jobs and is counting on to turn around this 40-month streak of over 8 percent unemployment. To push his new plan, President Obama didn’t send out his economic advisor to the Today Show, he sent out Robert Gibbs, senior adviser to the Obama re-election campaign, a move that reeked of politics and more of a concern about the November election rather than getting the economy back on track. With Obama’s latest move, he hopes to cast his opponents as those who are only concerned about the wealthy and protecting their tax breaks. The problem with this charge is simple: it’s flat-out false. Just like when Obama said that an overall tax cut extension is “least likely to promote growth-we can’t afford to keep that up, not right now…” What Americans – and their pocketbooks – can’t afford “to keep up” is the reckless and out-of-control spending that this administration began on its very first day in office.
“It’s time for oil companies to pay their fair share in taxes.” In recent months, that refrain has been expressed in some form or another in the halls of Congress, on stump speeches and even in President Obama’s State of the Union Address. From listening to some federal lawmakers, it’s hard to believe oil and natural gas companies pay any taxes at all. In truth, oil companies don’t pay their fair share. They pay far more. The top corporate income tax rate in the U.S. is 35%. America’s three largest oil companies, ExxonMobil, Chevron and ConocoPhillips, pay taxes in excess of 40%. ExxonMobil pays a tax rate of 45%, shelling out over $12 billion in federal taxes in 2011.
May has been a big month for one American business, Facebook. Instead of celebrating this success story, some policy makers in Washington D.C. want to penalize wise tax planning. According to a May 17, 2012 story in the Los Angeles Times, “Two senators on Thursday denounced Facebook Inc. co-founder Eduardo Saverin as a tax dodger for renouncing his U.S. citizenship ahead of the company's initial public offering and introduced legislation to punish him and others who leave the country to duck big tax bills. Among the penalties would be a ban on reentering the United States for anyone that the Internal Revenue Service determined renounced citizenship to avoid paying taxes.” This policy clearly represents how misguided the United States government is and how it is failing to compete with other countries in attracting and retaining businesses on our shores with an attractive corporate tax rate.