As expected, President Obama endorsed corporate tax reform in his State of the Union address last night, emphasizing that he is open to lowering the corporate income tax in return for the elimination of the loopholes and credits that are clogging up the corporate tax code, and as long as such reform is revenue neutral (meaning it doesn’t add to the deficit). “Over the years, a parade of lobbyists has rigged the tax code to benefit particular companies and industries,” Obama said. “Get rid of the loopholes. Level the playing field. And use the savings to lower the corporate tax rate for the first time in 25 years –- without adding to our deficit.”
As I’ve noted before, the U.S. is facing huge deficits and incredibly shrinking corporate income tax receipts, meaning that failure to raise revenue via corporate tax reform constitutes a missed opportunity. Citizens for Tax Justice agrees. But Republicans are already trying to play down the notion of raising money via corporate tax reform:
Republicans – as Rep. Kevin Brady (R-Texas) put it – said crafting a revenue-neutral plan would be a “challenge.” “We actually need a lower tax rate, rather than just rearranging the complicated code we have,” said Brady, a senior member of the Ways and Means Committee.
For his part, Sen. Rob Portman (R-Ohio) made a similar point, saying that forcing a tax reform package “to be revenue-neutral takes away some of the very benefit you would get from serious tax reform on the corporate side –- which is to make our code more competitive by lowering the cost of doing business in America.”
Senate Minority Leader Mitch McConnell (R-KY) also scoffed at the notion of revenue-neutral reform on MSNBC today:
I think getting the corporate tax rate down to a competitive level is extremely important if we want to create additional American jobs in America, for Americans. How you structure it is something we’ll take a look at. Most tax reform, when you lower rates, does have a goal of being revenue-neutral, but we’ll look at how the administration would propose to, quote, pay for, lowering the tax rate. Most members on my side of the aisle, myself included, are typically skeptical about the Democrats suggested, quote, pay fors, when they’re willing to go alone with a tax decrease.
The fact remains that corporations are hauling in record profits and sitting on nearly $2 trillion in cash reserves, while, corporate tax receipts account for about seven percent of federal revenues. Fifty years ago, corporate tax receipts were 23 percent of federal revenue. The U.S. collects less in corporate tax revenue than the OECD average.
By implementing corporate tax reform that is revenue-positive, Congress would simply be following in the footsteps of Ronald Reagan’s 1986 tax reform. “Despite lowering the statutory corporate tax rate from 46 percent to 34 percent, the 1986 act closed so many corporate loopholes that, it increased corporate income taxes by more than a third,” Citizens for Tax Justice noted. Or is Reagan now too radical on taxes for today’s Republicans?