Frank Clemente, Executive Director of Americans for Tax Fairness, wrote the following opinion piece for the Huffington Post. You can read it here and the text is reproduced below.
President Obama is grabbing headlines for his new corporate tax plan that would raise $238 billion over 10 years by assessing a 14 percent “transition tax” on the more than $2 trillion in U.S. corporate profits sitting offshore. The revenue would be used to shore up the Highway Trust Fund and increase investments in public infrastructure.
This is very welcome news. Everyone agrees our roads, bridges and transit systems desperately need to be rebuilt, and the jobs created will provide solid middle-class incomes. Moreover, corporations have not contributed a dime in new taxes towards deficit reduction or to finance new investments in recent years. Yet, the rest of us have suffered from cuts of $2.5 trillion over 10 years to services we rely on in order to reduce the deficit.
Unfortunately, this transition tax is a one-time windfall on existing offshore profits that go untaxed until they are brought home, which corporations may never do. At best it’s a down payment, as big corporations need to contribute much more than $238 billion on $2 trillion to pay their fair share.
The proposed 14 percent tax rate is much too low – the current official corporate tax rate is 35 percent (although many corporations pay far less than that thanks to a tax code riddled with special-interest loopholes). Ironically, it would reward some of the worst corporate tax dodgers who have stashed billions in tax havens. Why should they have a tax rate that is less than half that paid by many Main Street businesses?
The transition tax is one element of President Obama’s larger plan to overhaul corporate taxes. Pundits and the press in Washington tout this overhaul as one of the few possible areas of bipartisan agreement that could strike legislative pay dirt this year.
Corporate tax reform is urgent – but not for the reasons America’s biggest corporations are demanding it. They want much lower tax rates – so they can pay a lot less in taxes. We want a tax system where big corporations pay their fair share.
Another feature of the president’s corporate tax overhaul would lower the top corporate income tax rate to 28 percent, and to just 25 percent for manufacturers, for profits earned in the United States. The current corporate tax rate is 35 percent on all profits no matter whether they are earned here at home or in a tax haven like Bermuda.
The president also proposes “revenue neutral” corporate tax reform over the long-term, once the transition tax revenue is received. Revenue neutral means that any money generated by closing loopholes goes right back into corporate coffers by reducing their tax rates. We believe corporate tax reform must raise significant revenue over the long term to pay for services and investments that benefit our families and communities. The choice is simple: help average Americans by closing loopholes, rather than lower corporate tax rates that benefit corporate CEOs and Wall Street banks. The public agrees.
Finally, the president proposes to tax U.S. corporate profits generated offshore at a 19 percent rate. It is attractive to set a minimum tax on offshore profits; the current system is larded with so many loopholes that allow companies to shift income to tax havens that they often end up paying nothing.
But, a 19 percent minimum tax on offshore profits is far too low. And whatever new revenue will be generated will be given right back to big corporations through lower tax rates under the president’s “revenue neutral” plan.
Polls show the public feels strongly that our tax system should not encourage corporations to shift jobs or profits offshore. That means offshore profits should not be taxed at a lower rate than domestic profits, which the president’s plan would do. Lower tax rates on offshore income create an incentive for multinational firms to move production offshore and to disguise domestic profits as offshore profits. This gives them an unfair edge over small businesses and domestic companies.
For years everyone else has been picking up the tab for big corporations because our tax system encourages them to shift jobs and profits offshore. It’s time for that to end. President Obama’s plan does not go nearly far enough to do that.