SUMMER READING: CORPORATE TAX REFORM

The Taxpayers Protection Alliance (TPA) continues its Summer Reading series with yet another issue that Congress should address when they return from their month-long recess, reforming the corporate tax structure. Corporate tax reform is an issue where there is unique bipartisan, bi-cameral, and multi-branch agreement in Washington.  The reason for this unprecedented agreement is that the United States, with a 39 percent corporate tax rate, has the highest corporate tax rate among Organization for Economic Co-operation and Development (OECD) countries. It is long past due that Congress and the White House come together and fix what has become a major ailment to a still struggling economy.

Corporate tax reform has taken on a great deal of importance in the last several months. The economic driver, corporate investment, has taken a hit and our high corporate tax rate is responsible for much of that burden.

In the spring of this year, retiring House Ways and Means Chairman Rep. Dave Camp (R-Mich.) put forth his plan for overhauling the tax code, which included lowering the corporate tax rate from 35 percent to 25 percent, something that would be welcome news for small businesses all over the country. TPA supported  Congressman Camp’s efforts to even take this issue on at a time when not much of anything is getting done in Washington:

This week, TPA joined a coalition letter (posted on the website of the House Ways and Means Committee) thanking Chairman Camp for his efforts on tax reform and specifically the corporate rate. There is still a great deal of work to be done to make the tax code simpler for all working Americans, but the effort put in by Chairman Camp is well deserved of gratitude as he continues to work towards major tax reform.

On April 1, 2014, soon after the release of the Camp Tax proposal, the United States celebrated an unwelcome anniversary, the two-year anniversary of the US having the highest effective corporate tax rate in the world. On April 1, 2012 Japan lowered their own corporate tax rate to 36.8 percent, down from 39.8 percent. That rate decrease left the United States with a tax rate of 39.2 percent, the highest effective rate among developed countries.

The impact of this unfortunate distinction is driving companies, jobs, and money away from the United States and into more competitive places around the globe. There is a move toward “corporate inversions” the likes that have not been seen before as US companies move to merge with foreign companies where the tax climate is friendlier for shareholders. With the highest corporate tax rate in the world, it makes sense that companies would do this.

A recently published report put out by Americans for Job Security, titled Corporate Inversion Snapshot: High U.S. Corporate Tax Rate A Major Factor In Recent Uptick of Overseas Inversions detailed the recent increase of U.S. companies that are using inversions in response to the prohibitive cost of doing business in the states due to the corporate tax structure:

About 50 U.S. companies have reincorporated in lower-tax jurisdictions through 2013. The pace of inversions has increased over the past few years, with over 20 having occurred in 2011 alone. Many contend tax inversions occur in response to the uncompetitive U.S. tax rate, which has not been reformed since 1986, and currently ranks highest amongst OECD nations.

Unfortunately, the Obama Administration seems focused on demonizing and punishing these companies rather than addressing the real problem.

Andrew Lundeen of the Tax Foundation perfectly summed up the White House’s move toward more executive action to stop inversions:

Proposed changes like this try to address a symptom instead of curing the illness: the United States’ uncompetitive tax code.

There’s no telling for sure what President Obama and the Treasury Department will do regarding inversions, but there is reason to believe the administration may act on its own. Executive action to usurp Congress and punish companies would continue a trend where corporate tax reform is ignored and the underlying problems continue to go unresolved.

In a recent letter to leaders on both the House Ways and Means Committee and the Senate Finance Committee, TPA reaffirmed its support of keeping the focus on corporate tax reform:

While your respective committees continue to work on comprehensive tax reform efforts, we strongly caution against the urge to take action on short-term fixes aimed at individual symptoms, rather than the entirety of the tax code.  We are specifically concerned about proposals that seek to make changes to our tax laws as a means to pay for projects that are totally unrelated to tax reform.  Attempts like these are a step in the wrong direction.  Their passage will do nothing to help America’s job creators.  In fact, it will make it even more difficult to achieve true tax reform.

Time is running out for Congress this year, and with only a limited number of legislative days left for Congress,  it would seem reasonable to focus on something that has bipartisan, bicameral support as well as that of the President. TPA will continue to urge Congressional leaders to act on reforming the corporate tax code and calling for a lower rate so that the United States can regain the all important competitive edge that moves economies towards global success and will benefit consumers and small business nationwide.