The unspoken tax reform dilemma
According to the Center for Budget Policy and Priorities, “The Joint Committee on Taxation estimates that in 2016, while the corporate income tax raised $300 billion in revenues, targeted subsidies delivered to companies through the corporate tax code cost about $270 billion. As a result of these subsidies and other tax avoidance measures, many large U.S. companies pay very low rates. For example, Pfizer paid a rate of about 7.5 percent on its $12 billion in worldwide pre-tax income in 2014. Studies generally also find that U.S.companies’ tax rates vary widely by industry and type of investment.”
There seems to be some sort of magic mojo that is attached to both the House and Senate tax bills that will make everything wonderful, your kids smart and your mother-in-law suddenly find you adorable. Or, at least that is the way they seem to see it. The truth, on the other hand isn’t quite as proposed. Go figure. Their “magic” is based upon a rather tenuous basic assumption: “The U.S. Has Highest Corporate Tax Rate Among Major Economies.”
Unfortunately for them, no matter how many times you say it or how loudly you shout it, it just ain’t true. According to Danielle Kurtzelben, on NPR radio August 7, 2017, she rates it, “Mostly True”.
In her reporting she states, “The “mostly” in the “mostly true” here comes from the fact that a couple of other places beat out the U.S., outside of OECD countries. According to the right-leaning Tax Foundation, the U.S. comes in third out of 188, at 38.9%, behind the United Arab Emirates and Puerto Rico. (Tax Foundation’s list includes some U.S. territories.) Factor in deductions and other expenditures, and the U.S. Corporate Tax Rate isn’t so high. That rate becomes 18.6%, still the fourth highest behind Argentina, Japan and the United Kingdom.”
Following that logic and assuming that a couple of things about the new tax plan are in play:
(1) The corporate tax deductions will remain unchanged (as stated by numerous congressmen and senators)
(2) The tax bill reduces the corporate tax bracket to 22.5% (the compromise of both house and senate versions)
Then the net tax paid by corporations would be the difference of those two rates. Do the math, subtract 18.6% from 38.9% and you get a 20.3% reduction. If you start out with 22.5% and deduct the same percentage the net average tax rate to corporations under the proposed plan will be 2.2% (???????) How is that good for anyone other than the rich?
I’m not an economist here so if anyone has a more enlightened or learned point of view here and I’m missing something, I’d love to read about it.
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