A Grown-Up Conversation About Corporate Tax

A Grown-Up Conversation About Corporate Tax

Nothing is more fun for liberals than to catch a big multinational abusing U.S. tax laws. Google, Cisco, General Electric, and Apple -- to name a few -- now have public relations problems because the press has put a spotlight on their use of offshore tax havens. The tax dodging is disgraceful. The worst part of it is that it's all perfectly legal. We need to close the loopholes that make this all possible.

Liberals would like to end the conversation right there. But that is not an option in today's globalized economy...

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On April 1 Japan will lower its corporate tax rate to 38 percent. In the competition for the world's highest corporate tax rate, the United States will then be on top, with a combined federal and state rate of 39.2 percent. There is a broad consensus that rates should be reduced. President Obama says 28 percent. Republicans have coalesced around a 25 percent figure. Liberals cannot afford to be nostalgic. They should embrace rate reduction not because business tells them so but because it is in their own interests.

Now, how do we make up for the lost revenue?

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We need a major new source of revenue to make up for an obsolescent corporate tax. That new revenue source is obvious to most policy experts. ...[T]he economies around the globe that we are presumably trying to emulate with lower corporate taxes have VATs, and, for the most part, they are raising consumption taxes while they cut their corporate taxes.

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It's time for the United States to adopt a 21st-century tax system. More than anything else, that will mean minimizing the role of the corporate tax. It does not mean that liberals have to abandon their core objectives, just the traditional tactics for achieving them.

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View TaxAnalysts'® Martin Sullivan's opinion in its entirety on TAX.com.

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