Tax Foundation, Who Benefits from Corporate “Loopholes”?:
President Obama has been critical of so-called tax loopholes because, he maintains, they unfairly reward some industries—such as the oil and gas industry—and incentivize others to expand overseas rather than domestically. Despite this well stated position, the president’s recently released FY 2012 budget shows that, like most people, he believes there are good tax expenditures and bad tax expenditures, and one’s opinion and priorities determine which is which.
On the one hand, the president’s budget recommends eliminating or modifying more than $242 billion worth of tax expenditures benefiting multinational firms, oil and gas firms, coal companies, and insurance companies. On the other hand, the budget recommends making the Research and Experimentation Tax Credit permanent (worth $106 billion over ten years) and expanding a variety of other targeted tax credits for business worth more than $15 billion over ten years.
To put these proposals in perspective, it’s instructive to review the universe of corporate tax expenditures as outlined in a volume of the 2012 budget titled Analytical Perspectives. …
Although there are many preferences that are meant to achieve multiple policy goals, the universe of corporate preferences can be separated into four broad categories:
- Tax exclusions for state and local bonds
- Preferences aimed at advancing charitable or social policies
- Preferences that subsidize or directly benefit specific industries
- Preferences that are available to most corporate taxpayers
As Figure 1 shows, the largest category of corporate tax expenditures, with a budgetary cost of $448 billion over five years, is the group of preferences that are generally available to all corporate taxpayers. Within this category, the biggest “preference” is the deferral of taxes on the active income multinational firms earn abroad. This preference is considered to have a budgetary “cost” of roughly $213 billion over five years even though that income is not subject to U.S. tax until it is actually repatriated.
