Is Corporate Tax Reform Already Dead?
Rather than eliminate the deferral system, however, the administration presented an array of specific measures designed to address some of the more routine (and costly) ways that companies legally shift overseas income to avoid U.S. taxes. In addition, Obama added a proactive concession designed to neutralize his critics: A permanent extension of certain domestic research and development (R&D) tax credits that would facilitate tax planning and stimulate innovation (especially in green technologies), while creating more jobs at home. Overall, the deferral reforms are estimated to recover $210 billion in corporate income taxes, three times the amount needed to offset the R&D credit.
So here’s a story that died quietly, like pretty much all stories about tax reform. Does anyone remember the campaign season last year, when Barack Obama kept promising to do something about corporate tax deferrals, and the steady decline of corporate income tax revenue as compared to all other types of tax revenues?
Well, Obama’s plan has come and gone, and any hope of real reform now seems destined to die a slow, painful death in congress, where the president’s plan, already weak, will be chipped into little bits by the relevant committee chieftains. Charlie Cray’s piece here does a good job of outlining what happened to the reform initiative.
For those who don’t know how this works, the corporate tax system has been insane for more than a generation. Companies can move their profits offshore and defer any taxes on foreign profits until that money is repatriated. Even better, under the current system, companies can claim immediate deductions on their deferred-taxable income. Imagine if you could defer your federal taxes every year but claim your deductions nonetheless; you might end up paying a zero tax rate, or having the government actually owe you money. That is the situation with corporate taxes; although the official tax rate in this country is high enough, around 35 percent, in reality the effective tax rate for most years is far below that. In 2004, a tax amnesty year, the effective corporate tax rate was just 2.3%.
Obama’s plan didn’t end the deferrals (although he sort of promised to do that), but did end the immediate deduction system — except for a loophole exempting deductions for “research and development.” That last loophole was a blatant giveaway to the pharmaceutical industry, which was very generous in its support of Obama in the election, but whatever. The point is that the deferral system will remain in place, thanks in large part to intense lobbying from the usual suspects (the Chamber of Commerce, the Business Roundtable, etc). And that is a big relief for corporate taxpayers because one can always wait to repatirate profits until the time is right — for instance when the government decides to grant an amnesty, as it did in 2004 when Bush decided to reduce taxes on all repatriated profits from 35% to 5%.
Just another thing to think about as some of us file our estimated personal taxes this week. Once again there are promises by the Democratic Party that die slow deaths in the congressional bureaucracy, without much in the way of press attention.
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Where is the urgency? We’re absolutely fucked if this is to be the tempo of Democratic government. Republicans can just smash things way too fast for these guys.
Matt,
Don’t you understand? No one with any real power wants tax reform. Like the average citizen is going to get some politician elected.
When it comes to money, things are going to be a little less democratic, and will continue to be for years. Just the unfortunate reality.
There are bigger fish to fry, and tax reform is boring, and causes problems, so of course it gets pushed back.
“There are bigger fish to fry,…”
Let me know when the fish frying starts. I’ll bring the beer!
In response to another comment. See in context »To quote Bill Maher – “The ‘Audacity of Hope’ is dead!”
The difference between me and Mr. Maher (and millions of others) is that he thought there was some to begin with.
Cheer up Matt! It could be worse. The GOP could still be in charge of the whole shooting match and we’d still have DADT on the books, Gitmo open, the Secret Service keeping the WH visitor’s log under wraps, detainee abuse photos hidden from the public, and a bunch of thieving insiders running economic policy. Whew! Don’t you feel better already?
So how much longer is, “He;s only been President for …” going to work?
I don’t disagree with your sentiments, but I’m hesitant to say any policy initiative is cooked until we see what happens in conference.
This stuff makes my head explode and why the public keeps buying the Conservative mantra of High Taxes is just beyond me, it is such horseshit. McCain going on and on about corporations running away to Ireland, the only thing running away to foreign lands are jobs, oh, and there’s a tax break for that as well. I was praying that the USB tax frauds would shed light on all of this and maybe get to see Phil Gramm in a perp walk but that has slipped from the radar. Secret deal anyone? Individual taxes are the same rip-off, the rich are always whining about their
35% tax burden. They never pay 35%. Never.
The average Joe can count his deductions on one hand, the wealthy have a book and lots of people to read it to the IRS. I have been on both sides of the fence paying through the nose and not paying at all.
Sorry for the rant…but really something has to be done…I am getting terribly tired of waiting for change that not only I can believe in but that is real.
First, you are a pleasure to read.
When discussing the Obama election my only concern was that issues such as this would be if anything, improved. What is proving to the reality is that the same forces that effect the elected and what I was hoping for was a statesmen seems sadly has become just an ordinary politician ruled by the capitalist.
As that old saying goes, “” the more things change the more they stay the same “”
This recession (depression) is very real for some of us. Those who lost their jobs agonize over the lack of new jobs and growl in frustration at the absolute shit pay employers are offering for contract jobs (in some cases they ask for unpaid “interns” with at least 4 years experience… #$@FCING ASSHOLES).
It’s not that I expected some great change in reality, but the economic climate is very scary right now and corporations need a HUGE course in ethics and the reforms Obama promised were to be a start… guess it’s business as usual for the owner class and the rest of us can start our Third World survival course.
[...] Matt Taibbi – Taibblog – Is Corporate Tax Reform Already Dead? – True/Slant That is the situation with corporate taxes; although the official tax rate in this country is high enough, around 35 percent, in reality the effective tax rate for most years is far below that. In 2004, a tax amnesty year, the effective corporate tax rate was just 2.3%. [...]
Thanks for calling out President Obama, Matt. He’s not even middle of the road, as many told us to expect. He’s downright conservative, with a little lip-service to liberal social policy. I’ll bet the LGBT population feels a lot like the anti-abortioners felt the past eight years. Thanks for your vote, now kindly fuck off.
The last 100 years have seen the tax burden shift from the property-owning class to the income-earning middle class. Obama promised to reverse some of this, to shift the burden back up so more of it landed on the upper class. He promised to make corporations pay if they shifted income overseas. He promised to overturn DOMA. These are just a few and just a few he’s already turned his back on. What needs to happen is something about as likely as the Shah crawling out of his grave to rule Iran again: repeal the stupid precedent that allows corporations to be treated like people.
At elections we have a choice between the party of big business and the other party of big business. I don’t see that changing unless the electorate displays its disgust in an attention-getting manner. And good luck waiting for that to happen. I thought we were headed in the right direction as fewer & fewer people were voting each year, but Obama fucked that up. In my dreams a presidential election occurs but everyone stays home and doesn’t vote. We’ve already been ruled for eight years by a quasi-legitimate executive. Might as well go whole hog.