The Agenda

Revenue-Neutral Corporate Income Tax Reform Will Create Losers

That is the reminder Howard Gleckman offers Congress in a recent post, with an able assist from Marty Sullivan:

U.S. tax law is very, very good to some of these companies and much less generous to others. Courtesy of Marty Sullivan over at Tax Notes, here are the average effective rates that some of the firms represented at Geithner’s meeting reported paying over the past three years. Keep in mind the statutory tax rate in the U.S. is 35 percent, but companies can often lower their bill thanks to dozens of deductions and credits. At one end were the winners:  Cisco reported an effective income tax rate of 19.8 percent, Johnson & Johnson 22 percent, and GE just 3.6 percent. At the other end:  Wal-Mart paid 33.6 percent, and Disney paid 36.5 percent–more than the statutory rate.  This all happens mostly because some companies can shift nearly all of their profits to low-tax countries while others, due to the nature of their business, can’t. But whatever the cause, the effect is that the winners are very likely to fight like Tiger Moms to preserve their tax preferences even as they argue for lower rates. Those who get the short end of the tax stick today will use all of their influence to drive down rates and, if they can get away with it, convince Congress to add a beneficial tax break or two.

A more radical option: eliminate the corporate income tax and raise average (not marginal!) income tax rates for the rich by eliminating various deductions. My guess is that this approach won’t win many friends in Congress, on either side of the aisle. And besides, we need the revenue from eliminating and curbing deductions for deficit reduction.

Reihan Salam — Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

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