New York Times DealBook: Not All Companies Would Welcome a Lower Tax Rate, by Victor Fleischer (Colorado):
Reaching an agreement to cut the corporate tax rate should be easy.
Major figures from both political parties have expressed interest in
reducing the tax from 35%, which is the highest rate among the
country’s main trading partners. Corporations would generally benefit
from paying less tax and having more cash to reinvest in new projects or
pay in dividends to shareholders.The 35% rate is more of a
“sticker price” than a reflection of the average tax burden.
Corporations can pay a lower rate by lobbying for special deductions and
credits, employing aggressive transfer pricing strategies to shift
profits offshore and structuring operations to minimize how much they
pay in taxes in the United States.The average effective corporate
tax rate is around 20%, and even lower in some industries.
Cutting the nominal rate to 25% while broadening the base would
discourage wasteful tax planning and, some believe, would make United
States-based multinationals more competitive. But the politics of changing the rate and eliminating loopholes are thorny. Not everyone benefits. …A final tax package is likely to include many things other than a
simple reduction in the corporate tax rate. Congress may offer special
deductions and credits to soften the blow for companies that take a big
charge to earnings or lose a competitive advantage.The policy
argument for these sweeteners is especially weak. Usually, when
companies strive for a competitive advantage by offering superior
service or building a better mousetrap, we all benefit. But when
companies gain an advantage by aggressively managing their tax
liability, they benefit only themselves and shift the burden to others.Changing
the tax code is never easy. Cutting the corporate tax rate provides a
rare opportunity for bipartisan lawmaking. Congress shouldn’t make it
harder on itself by promising to hold harmless every company that has
manipulated the status quo to its advantage.
