4 Key Things to Know As Republicans Prepare to Unveil Their Corporate Tax Reform Plan
House Ways and Means Committee Chairman Dave Camp (R-MI) is preparing to unveil the GOP’s corporate tax reform package, Reuters reports. Like in his previous proposals, Camp “wants to slash the top corporate tax rate to 25 percent from 35 percent and simplify the code.” President Obama has also suggested an interest in lowering the corporate tax rate and cleaning out loopholes, so there is some hope that corporate tax reform could be grounds for bipartisan agreement.
However, Camp and his Republican colleagues have some unfortunate ideas about where corporate tax reform should go. Here are the key facts to know before the debate starts:
– Corporate profits are at record highs, while corporate taxes are at record lows. While the U.S. has a 35 percent corporate tax rate on paper, few corporations actually pay that, due to a proliferation of loopholes, deductions, and the widespread use of tax havens. In 2011, the last year for which data is available, the effective corporate tax rate fell to 12.1 percent, a forty-year low. The corporate tax used to track resonably well with corporate profits, but the two have become decoupled in recent years, with profits shooting up while corporate taxes as a share of the economy plummeted.
– Many of the biggest corporations pay no corporate income tax at all. As Citizens for Tax Justice has found, many of the biggest corporations have effective tax rates near zero. 26 major corporations paid no corporate income tax between 2008 and 2011, while making a collective $205 billion in profits.
– The GOP’s favorite corporate tax idea helps outsource jobs. Republicans love to promote a “territorial” corporate tax system, under which offshore profits made by U.S. companies are never taxed. (Currently, those profits are taxed when they are brought back to the U.S.) The Congressional Budget Office recently reported that such a plan results in “increasing incentives to shift business operations and reported income to countries with lower tax rates.”
– Corporate tax reform should raise revenue. Corporate taxes used to make up about one-third of federal revenue; now it makes up less than 9 percent. The U.S. used to raise about 5 percent of GDP in corporate tax revenue; now it raises below 2 percent. As former White House economist Jared Bernstein noted, “locking in these historically low revenue levels, either as a share of GDP, total receipts, or profits, would be yet another self-inflected wound.”