The House Ways and Means Committee will hold the first in a series of hearings on tax reform today, after Treasury Secretary Tim Geithner met with corporate CFOs last week to discuss corporate tax reform. The administration has been hinting that it may pursue corporate tax reform — ridding the corporate tax code of its labyrinth of loopholes and giveaways, and using the savings to lower the statutory corporate income tax rate — but has insisted that any corporate tax reform be “revenue-neutral,” with the new code raising as much revenue as the old code.
I wrote last week that even revenue-neutral corporate tax reform would constitute a missed opportunity, forcing more of the burden of deficit reduction onto working people, while corporate tax receipts make up an ever-shrinking proportion of overall government revenue. But according to Dow Jones Newswire, the corporate barons with whom Geithner met aren’t even willing to accede to revenue neutral reform, preferring that they receive tax cuts:
At that meeting, people briefed on discussions said, Geithner repeated a point he has made publicly that any tax overhaul should be “revenue-neutral”–that is, while tax rates may go down, the amount of revenue generated from corporate taxes, should not. Business leaders say they are willing to talk about giving up some current tax breaks in exchange for a lower rate. But they aren’t embracing “revenue-neutral” reform, preferring to talk about “fiscally responsible” reform where overall revenue from the corporate tax system may go down at least in the short term.
It makes sense that corporations would push for a corporate tax code even more preferential to their interest than the one they already have. But it would be absolute folly to actually move corporate tax reform in this direction.
At the moment, corporations are hauling in record profits and sitting on nearly $2 trillion in cash reserves. At the same time, according to the Office of Management and Budget, “corporate tax receipts will account for just 7.2% of federal revenues in 2010, with large corporations contributing less than one-sixth as much as small business and individual taxpayers to the Federal Treasury.” Fifty years ago, corporate tax receipts were 23 percent of federal revenue, and “and individual income tax payments were less than twice those of large corporations’ tax payments.”
The corporate tax code is an undeniable mess that encourages the use of tax havens and is riddled with giveaways to mature industries (like Big Oil). It needs to be fixed, but with full recognition that the U.S. needs to find more revenue if it is going to grapple with its long-term structural deficit.