Guess Who Wants to Kill Corporate Tax Reform
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The Fiscal Times
March 27, 2012

On the surface, large, publicly traded, U.S. firms appear united  in their desire to push for a lower marginal tax rate on their profits as part of a broader corporate tax overhaul. Multiple business advocacy organizations and a string of Republican lawmakers say dropping the top federal U.S. corporate rate from 35 percent to 25 percent would boost U.S. companies to hire and invest.

However, getting to either a 25 or 28 percent rate without adding to the federal deficit can unleash a feisty conflict among businesses about who ultimately funds a rate cut. Some large companies, including Disney, UPS, and Macy’s, pay more than 35 percent effective tax rates according to their most recent annual reports, unable to take advantage of corporate tax breaks and loopholes in the code.  Companies with vast overseas operations such as Cisco, Google, and Pfizer pay 18, 21, and 22 percent effective tax rates respectively by leveraging billions in tax breaks, in most cases through stashing income abroad

"As soon as you start talking about particular loophole-closers that’s when you divide the corporate community and the battle starts."

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For the former group, a 10 percent rate cut would be a flat-out gain, but for the latter group the potential loss of tax breaks and overseas tax deferral and transfer pricing maneuvers to finance lower marginal rates could mean higher tax bills. 

“Particular companies are worried about the base broadening—that they would actually be losers,” said Chris Edwards, Director of Tax Policy at the Cato Institute, a libertarian think tank.  “As soon as you start talking about particular loophole-closers that’s when you divide the corporate community and the battle starts.”

On April 1, the U.S. will officially earn the dubious distinction of having the highest corporate tax rate in the developed world after Japan cuts its rate by five percentage points.  Conservative lawmakers and some business leaders are pointing to Sunday’s milestone as further proof that the U.S. needs a lower corporate rate to keep American corporations competitive with foreign counterparts. President Obama last month touted a plan to cut the top rate to 28 percent, by scrubbing the vast majority of the more than 130 tax preferences businesses currently enjoy—or what economists refer to as “base broadening.”

But the battle hasn’t erupted because tax reform legislation has yet to be introduced, and likely won’t be until after the 2012 election.  However, multiple tax experts who spoke with The Fiscal Times say once the tax reform window opens, the most politically and mathematically logical targets to finance a substantial corporate rate reduction will be U.S. multinationals with large shares of their profits stashed abroad.