Nancy Folbre is an economics professor at the University of Massachusetts Amherst.
How can we fill the federal budget hole? The political standoff has been largely defined as a debate over tax hikes versus spending cuts.
Today’s Economist
Perspectives from expert contributors.
Many Democrats want to close tax loopholes in order to increase revenue. Many Republicans believe that government spending should be cut because it hurts the economy, rather than helping it — digging potholes, as it were, rather than fixing them.
But many tax loopholes for big business are potholes for the rest of us. Closing and filling them would cut spending and improve economic efficiency.
Special provisions in the tax code often provide specific subsidies to distinct groups. Such tax expenditures have the same effect as spending programs.
The word “loophole” implies an opportunity for clever manipulation that leads to unintended results. While some loopholes fit this description, others represent explicit efforts to provide special benefits, reflecting greater political priorities and intense lobbying efforts.
As Senator Russell Long of Louisiana once put it, a tax loophole is “something that benefits the other guy; if it benefits you, it’s tax reform.”
Corporate tax policies in the United States provide significant benefits to shareholders, at considerable cost to everyone else.
Our statutory corporate tax rate, at 35 percent, looks high relative to those of other countries. But the many deductions, credits and other special breaks mean that the effective rate (or taxes actually paid) is much lower — an estimated 13.4 percent of profits over the 2000-5 period, lower than the average for other major industrialized countries.
As my fellow blogger Bruce Bartlett noted, “The United States actually has the lowest corporate tax burden of any of the member nations of the Organization for Economic Cooperation and Development.”
The proliferation of special breaks helps explain why corporate taxes have declined over time as a percentage of gross domestic product and as a percentage of total federal tax revenues.
Robert McIntyre of Citizens for Tax Justice points out that tax expenditures for corporate and other businesses will cost about $364.5 billion in 2011. That’s about a billion dollars a day.
Many special corporate tax breaks also contribute to serious economic inefficiencies.
Corporations that invest overseas rather than within the United States enjoy a huge advantage in the form of deferred taxes on profits. Republican policy makers are now proposing a “tax holiday” or even total elimination of American taxes on offshore profits.
Such policies would further encourage corporations to relocate to countries with the lowest tax rates and avoid contributing to social investments in health, education and environmental protection.
There also is good reason to believe that increased “offshoring” will reduce employment growth.
Some companies, especially those that rely heavily on intellectual property rights like patents, can simply shift their profits to offshore tax havens. Small business owners who cannot easily engage in such practices are rightfully indignant.
Other members of the business community are also speaking out. A Caterpillar executive recently filed suit against his company (the world’s largest construction equipment manufacturer), asserting that he was demoted for criticizing the company’s tax minimization strategy.
Everyone concerned about environmental sustainability should take a close look at corporate tax loopholes. The United States, like most other industrialized countries, continues to provide billions of dollars of special tax subsidies for fossil fuel industries that contribute to global warming.
Nuclear power is also on the dole. Without public subsidies, including limits on economic liability in the event of an accident, it would not be economically viable.
If only we could throw these loopholes into the potholes and have a real discussion of tax reform, instead of getting buried by partisan obsession with the ratio of overall tax increases to spending cuts.
Article source: http://feeds.nytimes.com/click.phdo?i=a91222576f77bf41b1f59757097922e8
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