Want to stop tax inversions? Get on board with this tax reform

Yesterday, the Obama administration announced a sort of Berlin Wall for U.S. companies — trying to keep them from moving their headquarters to another country with a more advantageous tax climate than ours, one of the few industrialized countries that tries to tax profits earned overseas. The better approach is to revamp a corporate tax code that is increasingly uncompetitive. President Obama says he wants to do this, but his sincerity is in doubt given how little effort he’s put into such a reform.

Today, Sens. Mike Lee of Utah and Marco Rubio of Florida propose taking the reform approach, as part of a wide-ranging overhaul of the entire U.S. tax code for the first time in almost three decades.

On the corporate side, the GOP senators write (in an op-ed in the Wall Street Journal):

“On the business side, we would cut the current 35% corporate tax rate to make it competitive in the global economy. The exact rate will be determined as we continue to shape the legislation, but it must be low enough to end the problem of corporate inversions and the loss of American jobs to other nations. We will also allow companies large and small to deduct their expenses and capital investments while integrating all forms of business taxation into a consolidated, single-layer tax.

“These reforms would eliminate double-taxation on investment, and enable small businesses and startups to compete on a more level playing field against entrenched incumbents, who for too long have profited from the cronyist giveaways our plan would eliminate.”

That last bit is a worthy injection of populism into a system that too often rewards those with the best lobbyists, not those with the best logic. The duo also proposes finally ending the practice of taxing overseas profits and instead moving to the kind of territorial tax system almost every other industrialized nation uses. “The way to reverse corporate inversions and bring capital in off the sidelines,” they write, “isn’t to punish companies for obeying outmoded laws, but to change those laws to make America once again the best place in the world to pursue happiness and earn success.”

The more striking reforms they propose, however, come on the individual side. They propose reducing the tax brackets to just two rates of 15 percent and 35 percent while ending or changing a host of deductions, although their op-ed doesn’t specify which deductions or mention where the brackets would begin and end. It would also end the so-called marriage penalty, as well as something they dub the “parent tax penalty”:

“Today, parents are, in effect, double charged for the federal senior entitlement programs. They of course pay payroll taxes, like everyone else. But unlike adults without children, they also shoulder the financial burden of raising the next generation of taxpayers, who will grow up to fund the Social Security and Medicare benefits of all future seniors.

“This hidden, double burden on parents isn’t offset anywhere else in the system, and so true conservative tax reform needs to account for it. … Our proposal would account for this and level the playing field for working parents by augmenting the current child tax credit of $1,000 with an additional $2,500 credit, applicable against income taxes and payroll taxes — i.e., the taxes that most burden lower- and middle-income families. The credit would not phase out, and would be refundable against income tax and employer and employee payroll tax liability.”

Accounting for the financial burden borne by parents is a good way to address the problems faced by middle-income families, and allowing the new, larger credit both to count against payroll taxes and to be refundable ensures that low- and middle-income families will actually see the money in their pockets. There’s also a very sound outline of a plan to rework the Earned Income Tax Credit so that it dovetails better with income-based welfare benefits so that those workers don’t face effective marginal tax rates as high as some multimillionaire professional athletes face.

Some more details would be helpful — it’s an op-ed, not a white paper — but all in all it’s the kind of direction Lee and others have been talking about for months now. It’s the kind of proposal that, if embraced by more Senate Republicans, would give them a major policy position to offer voters in this midterm election, and a centerpiece for a governing agenda in 2015-2016 should they win a majority.

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101 comments
MarkVV
MarkVV

Debates about taxes always seem to run a predictable course. When the topic is the corporate tax, sooner or later somebody is bound to come up with the old, meaningless chestnut: ”Corporations do not pay taxes, they just pas them to consumers.”Of course corporations do pay taxes - those they do not manage to avoid by loopholes – and they do pass them to consumers, just like any other business expense.

Actually, it would be rational to get rid of corporate taxes altogether, and I believe that nobody would object – if the lost revenue were replaced by taxes on those who get inflated salaries or bonuses, or who make big bucks for things like financial machinations.


And what about regarding the individual income tax and the proposal for “reducing the tax brackets to just two rates of 15 percent and 35 percent?” I think it is the worst proposal outside a flat tax. I think the opposite should be done – to make the individual income tax rate as smoothly continuously progressive as practical. The two rates tax would mean that in both groups those with lower incomes would pay a much higher proportion of their income in taxes than those near the top, and it would give the greatest incentive to those near the break in rates to use all shenanigans imaginable to drop or stay below that break in the rates.

MHSmith
MHSmith

Robert Pozen has a interesting proposal, Kyle.

.

.

A Better Path to Corporate Tax Reform 

A 17% levy on foreign profits of U.S. companies to help finance a 5% rate reduction.

....As a compromise, I propose a global competitiveness tax of roughly 17% on all foreign profits of U.S. corporations. The tax could not be deferred. However, if a U.S. corporation had already paid taxes of 17% or more to a foreign country, it would not be taxed again if these foreign profits were repatriated to the U.S. 

For example, suppose Corporation X pays a 17% effective tax rate on its 2014 profits in the U.K. Since Corporation X is already paying 17% in taxes to the U.K., it would be allowed to move those profits anywhere in the world—including the U.S.—without being taxed again. Suppose Corporation Y, on the other hand, pays 12% on its 2014 corporate profits earned in Ireland. Then Corporation Y would promptly have to pay the difference, owing 5% in U.S. taxes on those Irish profits. After the company paid the tax, the foreign profits could be moved back to the U.S. without any additional corporate taxes. 

Why 17%? This is the effective marginal rate paid, on average, by corporations in advanced industrial countries (excluding the U.S.'s exorbitant 35%). A global competitiveness tax would encourage U.S. corporations to put foreign profits to use in the U.S., while removing the incentive for companies to transfer foreign profits to tax havens...

 http://online.wsj.com/news/articles/SB10001424052702304680904579366900326408522

DaPoet
DaPoet

The end result being that singles and childless couples end up subsidizing the lifestyles of those who chose to have children through higher taxes. For a conservative to support shifting the cost of raising a child onto singles and childless couples is rank hypocrisy.

DontTread
DontTread

"...the Obama administration announced a sort of Berlin Wall for U.S. companies - trying to keep them from moving their headquarters to another country with a more advantageous tax climate than ours..."


And like the real Berlin Wall, companies will still find a way through it, much to Comrade 0bama's dismay.

IReportYouWhine
IReportYouWhine

 The better approach is to revamp a corporate tax code that is increasingly uncompetitive. President Obama says he wants to do this


His idea of reform is doubling what they pay now.

MHSmith
MHSmith

Something more to consider in the push for corporate tax rate reform

US tax clampdown paves way for European raid on American corporate jewels 

 New rules to stop "tax inversions" wipe billions off British firms, but could ultimately lead to European buying spree in America 

http://www.telegraph.co.uk/finance/globalbusiness/11116832/US-tax-clampdown-paves-way-for-European-raid-on-American-corporate-jewels.html

One other item not to ignore...


What do rising interest rates mean to you?

It  means the interest rate on the national debt goes up increasing the size of national debt we all owe. 

One benefit of the economic downturn was the low interest rates that kept the growth rate of our national debt lower.



http://www.usatoday.com/story/money/markets/2014/09/23/what-do-rising-interest-rates-mean-to-you/16103537/

FIGMO2
FIGMO2

I'm liking what I'm reading, Kyle. Major tax reform is long overdue.

Now that Obama has his war on, maybe he can use diplomacy with the business world?

Operation Crowbar.

Question for our liberals...how does it taste?

schnirt

LogicalDude
LogicalDude

" financial burden borne by parents "

is already done by something some call "tax deductions" that you see on tax forms right now.  Are they hinting there is no tax deduction for dependents right now, since it reads that way, or trying to sell this to adults with children by touting "tax deductions"? 


Otherwise, I also have my doubts about the changes, since to get the country out of huge debt will require revenue increases as well as spending reductions.  This sounds more like reducing revenues without a plan for balancing the budget, or even lead to lower deficits.  (But, I have not read their whole op-ed either.) 

AvailableName
AvailableName

I have my doubts about the individual reforms; but, for corporations, I'd go a step further, stop taxing them.  Corporations don't "pay" taxes, they collect and remit them.  All we do by a corporate system is hide what flesh and blood people actually pay.  Yes, individual taxes will "go up" but all that is happening is that the curtain is pulled away.  The inversion problem?  Gone as the U.S. would become a tax haven, companies clamoring to locate here creating a bunch more, taxable, jobs.

332-206
332-206

"...one of the few industrialized countries that tries to tax profits earned overseas."

"...moving to the kind of territorial tax system almost every other industrialized nation uses."


Other Industrialized Nations:

Great comparisons when it's something I want to do,

Inappropriate comparisons when it's something (universal health care) I don't want to do...

Robtown
Robtown

Give the "job creators" tax breaks only if they actually create jobs... 

TheRealJDW
TheRealJDW

@Kyle..."President Obama says he wants to do this, but his sincerity is in doubt given how little effort he’s put into such a reform."


I think you have identified the wrong impediment.  This idea has been floating for sometime and it always falls apart when the Gover Norquist disciples get smacked with reality.  


To wit...Dave Camp did an enormous amount of work to craft a way forward that Boehner has flatly ignored.  Back in 2010 Ron Wyden and Judd Gregg introduced a bill in 2010, later introduced again as Wyden-Coats that called for a 24% corporate tax and 3 income tax tiers...bupkus.


Until Republicans are serious enough to listen to their own proposals (Camps) much less bipartisan ones (Wyden-Coats) we are going nowhere which of course leads to moves like Obama has made on inversions..AKA more complexity. 



RafeHollister
RafeHollister

We can't get this anti-business, big government, impotent blow hard out of the White House fast enough.  The economy has been hindered by his anti-business regulations and contempt.  The party of the status quo has locked us into a permanent recovery.   We desperately need tax reform, immigration reform, and education reform, and need to get back to trying to reform healthcare.  


Prosperity awaits the next President, willing to actively look to promote some growth initiatives.

DeborahinAthens
DeborahinAthens

This is so much BS. The mega corporations are paying the GOP (and Dems as well) to keep the tax situation the way it is. If the idiots in Washington wanted to solve our problems all they have to do is drop the corporate tax rate to 15% and eliminate the corporate loopholes that allows some companies to pay virtually no taxes. The loophole for energy companies that was supposed to encourage their building more refineries is a joke. There has not been a new refinery built for twenty years, to my knowledge. The GOPers want you to think that it is because of the environmentalists and liberals don't want them built, when in reality the energy companies make out like bandits by taking the tax credits and NOT spending money to build the refineries (which, by the way would create jobs). This increases their profits mightily, and--guess what-- they pay almost no income tax because of this break. They could go to lower personal income tax brackets and eliminate the personal loophole for real estate and charitable deductions. THAT is never going to happen because the lobbyists pay these money grubbers millions to keep them in place. And while they are at it (sarcasm, since the only thing they ever do is take money and take money and take money) they could eliminate the income cap on Social Security. Right now it is at $116,000, I believe. If they made everyone pay a portion of every dollar earned to SS, the SS system would never have a problem. They would have to pass a law forbidding the money grubbers from being able to use it for other programs. I am in the 35% bracket.

MHSmith
MHSmith

One of the best tax reforms of all is the balanced budget amendment Kyle. 

We can provide a means for every citizen to have very high quality, cover everything, basic healthcare similar to the Swiss system and get out of debt too, while cutting taxes over time but as we all know, without hard spending restraints in place it would be a totally wasted effort on a lost cause.

A balanced budget amendment has to be at the top of tax reforms, IMHO Kyle.


Fact: We came within one vote of passing the balanced budget amendment back in the '90s. 

consumedconsumer
consumedconsumer

@DaPoet my goodness, how inconsiderate of those "who choose to have children" to keep the human race going. baby factories, for the most part, are still only things of science fiction.


besides, when your 65-70 and having difficulty wiping your backside, you'll probably be grateful a couple of those freeloaders had a child to do it for you.

MHSmith
MHSmith

@DaPoet 


Only one flaw in thy ointment, even the "childless couples" can adopt to get deductions for dependents. 

Besides this works like education, social security, medicare and so many other benefits we receive: One generation is paying for the next and none of us were born by our own efforts.     


MHSmith
MHSmith

@DontTread 

Corporations have always had "a way through it" no matter what IT, "IS".

 K street is a Corporate thoroughfare right through Congress that reaches "both sides" of the aisle.




HeadleyLamar
HeadleyLamar

@IReportYouWhine In contrast, countries like the United States tax corporate income twice: once at the corporate level then again at the individual level through dividend income taxes.


From your link


Like I said earlier. The double taxation myth is one that dies hard.


But it just ain't so.



FIGMO2
FIGMO2

The topic is tax reform.

Obama's PREEMPTIVE war and his attack on a sovereign country can wait for later.

schnirt

HeadleyLamar
HeadleyLamar

@FIGMO2 Still no boots on the ground. Nothing has changed.


Obama isn't going to be baited into giving the terrorists exactly what they want. 


American soldiers to kill. 


That would be appeasing them. 

MHSmith
MHSmith

@LogicalDude 

That's why I've offered an alternative that will work. Follow my earlier exchange with Klye on funding healthcare entirely and paying off the national debt entirely with a Internet Access Tax, while cutting the taxes now used to pay for healthcare and to pay on the national debt with an attached balanced budget amendment to place spending restraints on Congress(that allow for deficits in cases of war or natural disasters.  

Kyle_Wingfield
Kyle_Wingfield moderator

@AvailableName This idea as I've seen it presented would remove the corporate income tax and then tax capital gains at the same levels as earned income. I haven't had a chance to study all the possible implications of this, but I certainly am warming to the idea. 

Kyle_Wingfield
Kyle_Wingfield moderator


@332-206 Actually, in this case it simply explains why so many U.S.-based companies are interested in inversions. Their potential destinations don't penalize them in the same way our government does.

RafeHollister
RafeHollister

@TheRealJDW Yeah, like Obama was serious enough to listen to proposals from his own panel, Bowles-Simpson, right.  Had he followed their advice, this economy and the nations financial situation would be much improved.

MHSmith
MHSmith

@RafeHollister 

I'm not going to address all of that comment but I would really like to know what the Republican blowhards, who are saying, - NO AMNESTY! - plan to do with those 11 million or so illegal aliens that Bush and the other Republicans granted amnesty by default to, when they failed to pass their, "comprehensive immigration reform bill"?


You do realize, those 11 million illegal aliens have since had children in this country who are born U.S. citizens? 

You can bet the tough talking GOP is not going to deport 11 plus million people, with probably 22 plus million U. S. citizen children in this country who will soon reach voting age. :)

Okay Mr. Perdue, tell us true, what'cha gonna do?

My guess, is a pathway to legal status for the 11 plus million illegal aliens -  if, you are smart.

consumedconsumer
consumedconsumer

@RafeHollister you can say a lot of things about the current POTUS really, but anti-business is a far stretch. Goldman Sachs appears to have opened a branch or recruiting office outside the WH these days.

HDB0329
HDB0329

@MHSmith A balanced budget amendment wouldn't work.....economic conditions that would require the government to go into deficit spending, i.e., war, economic downturn, would severely limit the government's ability to address such issues. Reforming the tax code but maintaining the progressivity of it.....along with universal health care would be a good starting point to economic improvement............

IReportYouWhine
IReportYouWhine

@HeadleyLamar @IReportYouWhine


Double taxation occurs because corporations are considered separate legal entities from their shareholders. As such, corporations pay taxes on their annual earnings, just as individuals do. When corporations pay out dividends to shareholders, those dividend payments incur income-tax liabilities for the shareholders who receive them, even though the earnings that provided the cash to pay the dividends were already taxed at the corporate level.


http://www.investopedia.com/terms/d/double_taxation.asp

IReportYouWhine
IReportYouWhine

@FIGMO2 Ever since we started this missiles and bombs only war, I noticed that al qaeda has grown into this giant land army with it's own country. Not good. Unless, that's what you wanted.

HeadleyLamar
HeadleyLamar

@FIGMO2 When we have boots on the ground and 4,000 plus soldiers killed chasing WMD's you might have a point.


Until then


Nope

DebbieDoRight
DebbieDoRight

@FIGMO2 -  The "sovereign country" gave him/ the US permission to use their air space.  Sorry.


Now, as for the tax "burden" that the US companies have, I see that when it comes to taxes, a lot of the Conned like to use the "European Example"; however when it comes to medicine, Medical Services, Leaves/Vacation times, etc.; then those same European countries are "Socialist!!" and "Pseudo communistic" in their approach to life!

D_Lucy
D_Lucy

@FIGMO2 And yet you were the one to invoke "Obama's war."  Go figure.  Schnirt right back at ya, hon.

RafeHollister
RafeHollister

@HeadleyLamar @FIGMO2 Still no boots on the ground. Nothing has changed.


Well, except for those thousand or so soldiers, we currently have in Iraq.  What happens when they are captured and taken hostage?


Headley, did you see we needed the F-22 to do Obama's bombing runs, due to the advanced Syrian air defense systems?  So, they aren't "grounded for safety reasons", like you have alleged before.

AvailableName
AvailableName

It should be, as our politicians are fond of saying, "revenue neutral" with the added benefit of attracting foreign investment.

332-206
332-206

@Kyle_Wingfield @332-206

And in the other case, it explains why the pre-Obamacare health care system was unaffordable for so many, and fell short of other industrialized nations in population health indices.

TheRealJDW
TheRealJDW

@RafeHollister


So in your world The Republican House voting against the play by a margin of 382-38 is Obama's fault?


 You want to know why Obama did not lead the charge....


"It should be fairly clear why the White House figured Simpson-Bowles was a nonstarter. They thought that if they endorsed it, Republicans would oppose it en masse, and hang every unpopular tax increase and spending cut around the White House's neck. "


Which is back to my original point...until the Grover Norquist disciples are gone there will be no reform because reform also means a reasonable revenue base and they won't vote for it. 

stands_for_decibels
stands_for_decibels

@RafeHollister For about the umpteenth time: There never was any "Simpson Bowles proposal." The commission could never arrive at an adequate consensus, so the two guys just issued one on their own.


And I see no reason to believe that we would have seen any improvement from cutting back on SS and breaking other promises we've made to our citizenry simply so that those two... people could claim they'd struck this fabulous bipartisan grand bargain.

RafeHollister
RafeHollister

@MHSmith @RafeHollister Don't listen much, do you?  We have to stop the flood of immigrants, before we can do anything with those already here.  


Another ill advised, rushed up,  unprepared for Amnesty will just guarantee we have another and another.  Once the illegals see that the folks who got here before the Amnesty were granted permission to stay and become citizens, they will try to get here and get established before the next Amnesty.


Anyone should be able to look at the last Reagan Amnesty and see that we need changes before we repeat that mistake again.



RafeHollister
RafeHollister

@HDB0329 @RafeHollister When he proposes something that will spur growth maybe they will get on board.  So far, he has been focused on wrecking the economy. He is so focused on raising taxes on carbon, allowing more illegals to come and stay here, imposing more expensive entitlements, and playing General, by directing our military in planning their ISIS strategy, he hasn't spent much time on growing the economy.

MHSmith
MHSmith

@HDB0329 @MHSmith 

Yes, it would work. 

One of the two exclusion I have stipulated to in the past is that the balanced budget would allow for deficit spending in cases of war and natural disasters . So ,your compliant is now nullified on that point.

If you can, show me where I said anything about eliminating income tax, I didn't.

So traditional compulsory tax revenues will continue to flow to the federal government  no matter  what the economic times.


We don't have a need of a progressive tax, with healthcare funded as I've suggested, which includes having paid off the national debt entirely, and a balanced budget amendment to the Constitution ratified.

 

HeadleyLamar
HeadleyLamar

@IReportYouWhine @FIGMO2 What we want is Muslims to take responsibility and provide the boots on the ground.


We can provide the air cover. 


They have to do the fighting. We arent going to send American boys to die for them anymore. 

FIGMO2
FIGMO2

@DebbieDoRight Warning Assad not to engage U.S. aircraft is not the same as asking for permission. No agreement between Assad and Obama.

HeadleyLamar
HeadleyLamar

@RafeHollister @HeadleyLamar @FIGMO2Well, except for those thousand or so soldiers, we currently have in Iraq.  What happens when they are captured and taken hostage? "


Wont happen.They are there to train nothing more.


Muslims are doing the fighting on the ground. As it should be .


Glad to see we are getting something out of the F-22 boondoggle.


We had other planes that could have done the job. Was and still is a huge waste of money.


The high cost of the aircraft, a lack of clear air-to-air missions due to delays in Russian and Chinese fighter programs, a ban on exports, and development of the more versatile and lower cost F-35 led to the end of F-22 production.[N 1] A final procurement tally of 187 operational production aircraft was established in 2009 and the last F-22 was delivered to the USAF in 2012.


http://en.wikipedia.org/wiki/Lockheed_Martin_F-22_Raptor





RafeHollister
RafeHollister

@TheRealJDW @RafeHollister You really have to twist reality and travel around your elbow to get to your thumb, to justify why Obama didn't support the solutions offered by the team he created to give him some solutions. 


The Republicans did it, they are responsible, haha.


The truth is, Obama only wanted solutions that fit his ideology.  When Simpson-Bowles failed to provide enough solutions he agreed with, he trashed their efforts.

RafeHollister
RafeHollister

@stands_for_decibels @RafeHollister And you proggies always talk about how much we need bipartisan compromise.  This proposal was about as much a compromise as you could hope for, but since Obama was not happy with giving up any of his social justice/fundamental change agenda in exchange for tax revenue, he just dithered, til it died.



consumedconsumer
consumedconsumer

@RafeHollister @HDB0329 how could he be "focused on wrecking the economy" when the economy was already wrecked?


and your beloved 'job creators' got their tax cut - permanent like. where's the jobs that were suppose to magically appear?

stands_for_decibels
stands_for_decibels

@RafeHollister @stands_for_decibels That's a cute view of history. Actually this administration, to its eternal shame, did offer to compromise on how future SS/Med COLAs would be calculated, and there was an understandable uproar from actual progressives.


Far as I know, Obama would offer it again given the chance--and a GOP controlled Senate might just provide it, unfortunately.