Corporate tax reform could help avoid fiscal cliff

As the battle to avoid the fiscal cliff continues in Washington, D.C., corporate tax rates come to the forefront of the discussion.

President Obama and House speaker John Boehner are still tussling over the details of any fiscal cliff deal. But the Wall Street Journal reports that, now corporate tax rates have entered the discussion.

How much does it really matter what kind of tax rate corporations have to stick to? The U.S. corporate tax rate tops out at 35 percent. It’s higher than many other country’s rates.

But there are enough loopholes that corporations don’t pay the high rate.

Arturo Bris teaches business at the IMD Business School in Switzerland. He says it’s easy for corporations avoid high taxes in their home countries. They just establish subsidiaries in countries with lower taxes -- places like Ireland and Luxembourg.

“Basically the company will set up subsidiaries, usually in countries with very low tax rates, and the transactions will be taxed at the lowest tax rates," he explains.

But if the U.S. corporate rate were lower, would there be fewer subsidiaries?

There might be, according to Eric Toder of the Tax Policy Center. Still, he says, even closing corporate tax loopholes wouldn’t bring much cash into the government’s pocket.

“I think it’s unlikely, given what they’re likely to eliminate, that you could do this and raise revenue," he says. "And it’s most likely that federal revenues would decline from that, as a result of which you’d probably have to find some other revenue sources."

So, we’re back to square one.

 

 

About the author

Nancy Marshall-Genzer is a senior reporter for Marketplace based in Washington, D.C. covering daily news.

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