A coalition of U.S. companies seeking to lower the 35 percent corporate tax rate said it is willing to trade away some existing breaks. They won’t say which ones.
Elaine Kamarck, the Democratic chairwoman of the bipartisan RATE Coalition, said today at a Bloomberg Government breakfast in Washington that once public discussion of a tax overhaul gets specific, the chances of agreement evaporate because of the competing interests of different industries.
“Once that logrolling dynamic begins, you cannot get a deal,” said Kamarck, whose 28-member coalition includes Home Depot Inc. (HD:US) and Nike Inc. (NKE:US) “Engaging in a discussion about this expenditure versus that one is politically really counterproductive.”
Kamarck’s comments underscore the challenges facing lawmakers and lobbyists seeking changes in the U.S. tax code. Every alteration creates winners and losers. RATE wants to broaden the base to pay for the rate cut, meaning some companies outside the coalition would pay higher taxes even with a lower statutory rate.
Tax executives from companies that are members of the coalition, including Walt Disney Co. (DIS:US) and Ford Motor Co., are meeting with lawmakers, administration officials and congressional aides today. The meetings are part of the coalition’s efforts to emphasize revenue-neutral rate reduction and minimize discussion of specific tax breaks.
The companies in the coalition tend to have relatively high effective tax rates and have most of their operations based in the U.S., said Edward Kleinbard, a tax-law professor at the University of Southern California. Companies with lower effective tax rates book their profits in low-tax countries and defer U.S. taxes by keeping their earnings overseas.
Holding together the coalition of companies with relatively high rates will be difficult, Kleinbard said, as each company analyzes specific proposals coming from lawmakers.
“At the margin, there could be firms who start to feel good long before 25 percent and firms who feel that it’s just barely a good trade-off for them individually,” said Kleinbard, former chief of staff at the congressional Joint Committee on Taxation. “It takes a lot of cajoling and leadership within the coalition to keep something like this together.”
Kamarck, who led former Vice President Al Gore’s government restructuring efforts, and her co-chairman, James Pinkerton, said they see an opportunity for bipartisan agreement on corporate rate reduction. They said a tax overhaul is one of the few remaining policy options that could lead to job growth.
“Let’s have that great single shining moment at this moment,” said Pinkerton, who worked on domestic policy for Presidents Ronald Reagan and George H.W. Bush. “We think it’s quite possible in this next year to have that happen.”
The U.S. marginal corporate tax rate is higher than that of any other major industrialized country. An administration analysis shows that the effective marginal corporate rate in the U.S. is 29.2 percent, lower than in the rest of the G-7 countries.
Republicans, including House Ways and Means Chairman Dave Camp and presidential candidate Mitt Romney, have endorsed a 25 percent corporate tax rate. They haven’t said what tax breaks they would eliminate or what other changes they would make to offset the effect on the U.S. budget.
“What we want to do in the Ways and Means Committee is have hearings in plain view, in the public,” House Budget Committee Chairman Paul Ryan said June 8 on Bloomberg Television’s ‘Political Capital with Al Hunt.’ “And we will basically say, we want to lower our tax rates. That means we’re going to have to broaden the base. Let’s have public hearings about which ones matter the most.”
The Obama administration released a business tax framework in February that calls for eliminating most tax breaks and dropping the corporate rate to 28 percent. Domestic manufacturers and renewable-energy companies would have an effective rate of 25 percent.
The members of the rate-focused group are willing to put all of the tax breaks the companies receive on the table and support a revenue-neutral approach, Kamarck said. She wouldn’t talk about specific options, such as curtailing the deductibility of interest and raising the tax rates on capital gains and dividends.
She pointed to the 1986 overhaul of the tax code and said that effort came together only when Senator Bob Packwood, then chairman of the Finance Committee, made the crucial decisions in private about the core features of the bill.
“This is something that should not be engaged in public,” Kamarck said. “Because once it’s engaged in public, you cannot get a deal.”
The 1986 overhaul worked in part because each time lawmakers suggested reinstating a tax break, staff members would calculate the marginal rate increase needed to pay for it, said Rudolph Penner, who was then director of the Congressional Budget Office.
Still, he said, debates over particular business tax breaks divide companies.
“If you identify the losers more precisely,” said Penner, now an institute fellow at the Urban Institute in Washington, “that always makes tax reform more difficult.”
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