In its fiscal year 2011 budget, the Obama administration again proposed a series of measures aimed at closing tax loopholes exploited by multinational corporations, which were never adopted last year. The new set of proposals is actually less ambitious than last year’s, aiming to raise $122 billion over ten years, as opposed to the $210 billion raised in the 2010 budget.
Still, the changes have run into the same wall of opposition. And in the forefront are deficit peacocks in the Senate, who claim to be very concerned with deficits until the prospect of closing tax loopholes arises. For instance, Sen. Jim DeMint (R-SC) said this week that “our nation is staring at a fiscal tsunami that threatens our future prosperity,” while Sen. Chuck Grassley (R-IA) complained yesterday about the “big fiscal hole” in the nation’s budget. However, neither of them thinks that closing corporate tax loopholes is an appropriate way to raise more revenue:
– DeMint “takes exception to Obama’s plan to trim the deficit by raising taxes on corporations, calling it the ‘coward’s way out.’”
– Grassley: We’d be shooting ourselves in the foot to raise taxes on the people who create jobs right now.
Last year, Obama shelved corporate tax reform and has come back with a considerably scaled back package, which even leaves in place the ridiculous “check the box” rule allowing corporations “to legally disregard foreign subsidiaries in tax havens.” This one concession alone amounts to $87 billion in lost revenue over ten years.
To treat all of these breaks as sacrosanct is the height of budget irresponsibility, and shows a fundamental lack of seriousness with regard to addressing deficits. After all, Obama isn’t even proposing a rate increase, but simply collecting the tax payments that are due! And a company has to be paying an effective tax rate of less than 10 percent, with a rate of return of more than 30 percent, just to qualify as “suspicious” under the plan. All in all, it’s a pretty tame proposal that DeMint and Grassley are lampooning.
Currently, just 12 cents out of every federal dollar comes from corporate tax revenue, while “corporate income tax as a share of gross domestic product has fallen from 6% in 1951 to about 2%” in 2008. According to data compiled by the Organisation for Economic Co-operation and Development (OECD), the U.S. raises less in corporate tax revenue as a percentage of GDP than many industrialized nations, including Canada, Japan, Australia, and the United Kingdom.
So it’s one thing to argue about the statutory corporate tax rate, which Republicans also love to gripe about. But it’s quite another to blast deficits while at the same time defending loopholes that allow corporations to pay far below the rate that is currently on the books, which exacerbates deficits going forward and shifts the tax burden onto law-abiding corporations and taxpayers.