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When it comes to taxes, corporate America is divided into two parts. First, there are companies that pay full freight. Their effective tax rates are close to the statutory 35 percent rate. They tend to be low-tech and labor-intensive, and -- most of all -- they have most of their profits in the United States. Then there are those companies that collectively save tens of billions of dollars each year by taking advantage of loopholes in the transfer pricing and anti-deferral rules. Their effective tax rates are significantly less than 35 percent. They are technology-intensive and pack a lot of their profits in tax havens.
The deep division of interests in corporate America is a headache for the broad business coalitions like the U.S. Chamber of Commerce and the Business Roundtable (BRT), whose members are in both groups. Obama and House Ways and Means Committee Chair Dave Camp, R-Mich., both have said that they want corporate tax reform to be revenue neutral. And that kind of reform means one group must suffer at the expense of the other.
In fact, the Chamber seems a little lukewarm about rate reduction. Commenting on Camp's draft plan to lower the rate to 25 percent, the group stated that it "reserves further comments on the proposed rate reductions until additional details are provided with respect to the corresponding base broadening measures that will be proposed." Putting that all together, the Chamber in effect is saying it opposes corporate tax reform that is not a corporate tax cut. Without any base broadening, that's about $10 billion per year for each percentage point reduction in the corporate rate.
The motto of the BRT is "Not Just Leaders. Leadership." More than anybody else, business leaders should appreciate that the enormous sums of money needed to pay for rate cuts they seek must come from somewhere. Until they are explicit about those sources, until they are willing to take the heat from those who are going to pay, are they really providing leadership?
View TaxAnalysts'® Martin Sullivan's opinion in its entirety on TAX.com.
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