Will Business Kill Tax Reform?

Will Business Kill Tax Reform?

By Joseph J. Thorndike

Corporate tax reform, as President Obama declared in his State of the Union speech, is certainly long overdue.

But what sort of reform? Some corporations are paying too much, but others aren't paying enough...

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My colleague at Tax Analysts, Marty Sullivan, has underscored the disparities plaguing the corporate income tax. "The essence of an efficient and competitive tax system is a level playing field," he told the House Ways and Means Committee last week. "Government should not attempt to outguess the market and pick winners and losers. Unfortunately, there is a wide disparity in the tax treatment of businesses under current law."

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In his speech, Obama attributed tax law disparities to the "parade of lobbyists" who have advanced the interests of their clients even as they undermined the tax system as a whole. And he's certainly right. But many of the benefits showered on multinational corporations have been deliberate, designed to encourage the competitiveness of U.S. corporations and protect U.S. jobs.

That's not crazy, but it's not right, either...

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Tax favors aren't just unfair, they're also unwise. As the Center on Budget and Policy Priorities has observed, tax disparities distort decision-making, encouraging companies to make investments based on tax consequences, not business fundamentals. Leveling the playing field among corporate taxpayers would help eliminate such distortions, boosting efficiency across the economy.

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It costs about $8 billion for each percentage-point reduction in the corporate tax rate, according to a report from Bloomberg. Unless offset by base broadening, that sort of giveaway is simply unaffordable in our current fiscal climate.

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View TaxAnalysts' Joe Thorndike's opinion in its entirety on TAX.com.

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