Yesterday, the Obama administration completed its budget release, “with fresh details on a plan to scale back tax advantages for businesses operating overseas.” The administration wants to prevent corporations from claiming tax deductions on overseas investments until they pay U.S. taxes on their profits, and change a rule known as “check the box,” which has amounted to a loophole allowing companies to easily shift income into low tax countries.
“We’re going to spend whatever it takes,” said Brigitte Schmidt Gwyn, senior director of congressional relations for the Business Roundtable, which represents CEOs of the nation’s largest companies.
The business lobby’s main claim is that the tax changes will cause widespread job losses, a charge that is overblown. The real concern is that the corporate tax status quo is completely off kilter, as corporations can take advantage of myriad loopholes to simply avoid taxation. As Matthew Yglesias noted, “check the box” was meant to simplify classification of corporate subsidiaries, but it unintentionally created a huge tax loophole:
[A]s soon as it was noted, an effort was put in place to change it. But a ferocious lobbying battle opened up…The availability of this loophole is a significant incentive for companies to invest in their overseas subsidiaries and take advantage of the tax shell game. It’s a loophole that nobody ever intended to create, and that should be done away with forthwith.
These corporations aren’t doing anything illegal, but they are gaming the system to their advantage. So this debate shouldn’t be about whether the corporate tax rate is too high or too low, but about the responsibility that corporations have to pay the rate that’s on the books. The Obama administration is proposing common sense reforms so that corporations can no longer dramatically lower their tax rate by taking advantage of loopholes. And the business lobby has made it clear that it’s willing to go to great lengths to keep these loopholes open.
In the LA Times today, the Chamber of Commerce likened Obama’s closing of loopholes to bank robbery:
“The administration’s displayed an insatiable appetite for spending and they need to get money wherever they can. So they use the tax code the way Willie Sutton used a gun,” said Martin A. Regalia, vice president for economic and tax policy at the U.S. Chamber of Commerce, referring to the famous bank robber.