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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Why not a grand bargain with a brand new tax plan? 10% personal income tax - 10% corporate tax - 10% National sales tax on all sales of goods and services for both businesses and for individulas? Replace all other taxes and you have got it covered with a much simplier flatter and transparent system.

A flat corporate tax rate and sales tax combo for busines to business would draw capitlal, investment and jobs to US. All US sales would be subject to the sales tax wheter to an individual or to another business. A business could deduct the sales tax they paid for the supplies for their business. Thus a net sales tax would be sent in. ( similar to a VAT)

A simple 10% Corporate income tax on Net profits with limited deductions would be a magnet to world capital to build and create jobs in the US.

A "Fair share" tax system would have a flat rate system. If you earn and spend 10 times as much money as your neighbor then you should pay ten times more in taxes. The same rate for all does that.

For families at home a 10% sales tax and the 10% Income tax would have only one exclusion. That is a $10,000 income tax exclusion for each household member.

No more payroll tax would allow Social Security and Medicare to be funded by the sales tax.

It is time for a bold grand bargain that allows the US to be competitive in the Global economy.

10-10-10- is simple and effective.

I understand the need for a short report, but it left the feeling there was no way to provide additional revenue from corporations. You should have included one expert with a perspective on how revenue that is shifted to subsidies could be brought into the taxable equation, in order to balance the story.

What else could help? A carbon tax. Seriously, a real carbon tax would raise revenue and help reorganize our economy to be more efficient, by correcting the energy market to include externalities that are at present socialized and ignored, while oil and gas companies reap the profits and buy off the media and government and academia. Carbon tax would be a great topic for a segment on your show.

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