Debate Club

U.S. Corporations Are Not Overtaxed

By + More

Unfortunately, the corporate tax reform "framework" released by the Obama administration does not include what should be the main goal of reform—raising revenue to fund public investments and address the budget deficit.

The president's framework calls on Congress to close over a trillion dollars worth of tax loopholes and use the savings to pay for more corporate tax breaks—including a reduction in the statutory corporate tax rate from 35 to 28 percent.

[Read the U.S. News debate: Should Mitt Romney Pay More in Taxes?]

U.S. corporations are not overtaxed. My organization studied most of the Fortune 500 companies that have been profitable in each of the last three years and found that their average effective tax rate during that period was just 18.5 percent.

This means big corporations' effective tax rates (the percentage of profits they actually pay in taxes) are only about half the statutory tax rate of 35 percent that corporations complain about. Thirty corporations had net negative taxes (meaning they received money back from the Treasury) over the three-year period.

One such corporation is Boeing. Last week President Obama told a crowd at a Boeing plant that revenue saved from closing tax loopholes "should go towards lowering taxes for companies like Boeing that choose to stay and hire here in the United States of America." But Boeing paid federal income taxes in only two of the past 10 years. Its total taxes over that period were less than zero—despite its $32 billion in U.S. profits!

[GOP Candidates Could All Add to Federal Debt.]

One cause of corporate tax avoidance is the rule allowing U.S. corporations to indefinitely "defer" U.S. taxes on their offshore profits. This loophole encourages companies to shift jobs offshore and to use accounting gimmicks that shift their U.S. profits, on paper, to tax-free offshore tax havens.

The "minimum tax" on offshore profits proposed in the president's framework may combat these abuses, depending on its rate, which the framework leaves unspecified.

The goal of such a reform is not to tax profits that are really earned abroad. The U.S. corporate tax allows companies a credit for any corporate taxes they pay in other countries, which avoids double taxation. This would not change.

[Five Ways to Spin Obama's Tax Plan.]

The real goal is to prevent U.S. corporations from shifting profits to tax haven countries where they are not taxed. Congress should end "deferral" or enact a minimum tax strong enough to address this problem.

Steve Wamhoff

About Steve Wamhoff Legislative Director of Citizens for Tax Justice

Tags
corporate taxes
Obama, Barack
Obama administration

Other Arguments

#1
77 Pts
Obama Proposal a Little Good, Some Bad, a Whole Lot of Ugly

No – Obama Proposal a Little Good, Some Bad, a Whole Lot of Ugly

Nick Tuszynski Fellow at George Mason University's Mercatus Center

#2
14 Pts
U.S. Corporate Tax Code Is Terribly Inefficient

Yes – U.S. Corporate Tax Code Is Terribly Inefficient

Chuck Marr Director of Federal Tax Policy at the Center on Budget and Policy Priorities

#5
-14 Pts
The President Strikes a Blow for Tax Fairness

Yes – The President Strikes a Blow for Tax Fairness

Eileen Appelbaum Senior Economist at the Center for Economic and Policy Research

#6
-17 Pts
Better Tax Reform Would Tax All Business at One Low, Flat Rate

No – Better Tax Reform Would Tax All Business at One Low, Flat Rate

Ryan Ellis Tax Policy Director at Americans for Tax Reform

#7
-21 Pts
Lowering the Corporate Tax Rate a Good Start

Yes – Lowering the Corporate Tax Rate a Good Start

Elaine Kamarck Co-chair of the RATE Coalition

You Might Also Like


See More