Tax Reform and Lower Rates, a Painstaking Venture

By January 27, 2011Taxation

Kevin Hall, McClatchy, “Business leaders wary of Obama’s plan to cut corporate tax rate“:

“Do I think it can be done? Yes. But it’s going to be very painstaking, it’s going to be difficult,” said Dorothy Coleman, the vice president of tax policy for the National Association of Manufacturers. “If it was easy, it would have been done a long time ago.”…

“I think our overall feeling on corporate tax rates is they should be as low as possible,” said NAM’s Coleman. She offered only a qualified endorsement because Obama said the lowering of corporate tax rates can’t add to the deficit, projected Wednesday by the nonpartisan Congressional Budget Office to hit a record $1.5 trillion this year.

“We support fiscally responsible tax reform, but starting from the beginning, that it’s got to be revenue neutral almost by definition means creating winners and losers,” Coleman said. “When you target one industry over another, that changes the conversation.”

USA TODAY, “Corporate tax rates beg for cut but reform tough to achieve, “Scott Hodge, head of the non-profit Tax Foundation, says tax reform is likely this year because Japan is slated to cut its corporate tax rate in April, giving the U.S. the highest rate. ‘We’ll have to do something,’ he says.”

Hodge covered the Japanese developments in a blog post last month, reporting that the cabinet of Prime Minister Naoto Kan had OK’d reducing the corporate tax rate by 5 percentage points, a move expected to be finalized when the Diat approves the government’s budget this spring.

Hodge also addresses the impact of the worldwide tax system — which the United States continues to use — versus the territorial tax system.

Japan’s corporate rate cut should be a wakeup call to U.S. lawmakers that our corporate tax system is becoming increasingly out of step with the rest of the global community. Not only is our rate too high, but we are now one of the few countries that tax the world-wide profits of its multinational firms. Most other nations tax only the domestic profits of their companies.

Indeed, the last two countries to move away from a world-wide system to a more territorial system are Japan and Great Britain. Last year, Japan began exempting the majority of foreign profits from domestic taxation in reaction to the fact that Japanese multinational firms were not bringing profits home. Great Britain moved to a territorial system to stem the tide of large U.K. firms that were moving their headquarters to Ireland or Switzerland to protect their overseas profits from Britain’s 28 percent corporate tax rate.

See also Veronique de Rugy, Reason Online, “Destroying Jobs in Order to Save Them.”

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