You'll be hearing a lot about President Obama's proposal to overhaul the corporate tax code, but for now let me just stick with three numbers:
--35%: Top rate for corporate taxes
--28%: Revised rate under Obama plan
--1.1%: Tax rate paid by Carnival Corp., the cruise company
Now, why on earth would Carnival want to pay 28 percent when it currently pays 1.1 percent? All right, Carnival is an extreme case, but Boeing's tax rate over the last five years was 4.5 percent. Southwest Airlines paid 6.3 percent, Yahoo 7 percent, Prudential Financial, 7.6 percent, General Electric, 14.3 percent. You get the idea - the 35 percent rate, while among the highest in the world, is also somewhat of a joke because there are so many ways around it. The Business Roundtable, one of the more powerful Washington lobbyists, is all for corporate tax reform, but the group gets squirrelly when it comes to the loopholes, which is why so many companies pay way less than they should. From NYT columnist Dave Leonhardt:
Arguably, the United States now has a corporate tax code that's the worst of all worlds. The official rate is higher than in almost any other country, which forces companies to devote enormous time and effort to finding loopholes. Yet the government raises less money in corporate taxes than it once did, because of all the loopholes that have been added in recent decades. "A dirty little secret," Richard Clarida, a Columbia University economist and former official in the Treasury Department under President George W. Bush, has said, "is that the corporate income tax used to raise a fair amount of revenue."
The Washington Post's Ezra Klein chimes in:
In a sense, this document is making two, somewhat contradictory, points simultaneously: Yes, we should reform the corporate tax code. That piece of conventional wisdom is true. But no, it's not obvious how we should to do it, and it won't be easy. The mantra "broaden the base and lower the rates" is nice, but a mantra is not actually a plan. Whether anything comes of this document will depend, in no small part, on whether corporations really want a cleaner, simpler tax code, or whether they're more interested in protecting the breaks, loopholes, and tax arrangements they currently have. They are, after all, the primary constituents of this change, they are sophisticated about tax policy and how it affects them, and they are very politically powerful. So they will have ample opportunity to weigh in.
Keep in mind there's virtually no way a corporate tax overhaul will get through Congress this election year. The president's proposal is more about politics than reality. Which, of course, is part of the problem. Here's another problem: If corporations pay higher taxes, there's a good chance that their earnings will be lower, which means a bunch of unhappy shareholders (many of whom are now griping about said corporate tax loopholes). It's one of those be-careful-what-you-wish-for situations.