This week marked the first time that President Obama has explicitly proposed corporate tax reform as part of his offer on the "fiscal cliff" — something that Republicans and large corporations have long been gunning for. But advocates for higher taxes on corporations worry that the White House and Congress will end up passing a fiscal cliff deal that would fail to force big companies to pay their fair share.
"Our nation cannot afford 'revenue neutral' corporate tax reform that leaves corporate taxes as a share of our economy at historically low levels," a coalition of business leaders wrote in a letter to Congress and the White house, calling for legislators to reject a fiscal cliff compromise "that would lock in today's historically low levels of corporate tax receipts."
The advocates have attracted the support of Democratic legislators like Sen. Carl Levin, who argues that corporations, too, should be contributing net revenue to deficit reduction, rather than just finding savings through entitlement programs and the small businesses who pay their taxes through the individual tax code. Levin estimates that "tens of billions of dollars a year" could be raised by closing tax loopholes like offshore tax havens. "I would hope that these revenues which are so critically important to a deficit reduction package are being considered," he said.
However, the Obama administration has already suggested that they'd be willing to support to a revenue-neutral corporate tax overhaul, rather than one that raises net revenue as Levin and advocates are pushing for. The White House put out a tax plan in February that raises $250 billion over 10 years by closing tax loopholes, but it also reduces the corporate tax rate from 35 percent to 28 percent, which outside analysts say make the proposal revenue-neutral.
"This would not be the revenue-raising part of the negotiation. Corporate tax reform as the White House conceives it is revenue-neutral — and it's not easy to get to revenue neutrality, figuring out which tax expenditures to end," says Jared Bernstein, former economic adviser to Vice-President Joe Biden.
So while "the President is committed to corporate tax reform that does not add a dime to the deficit," as its February outline says, it's also a plan that doesn't reduce it, which the advocates behind the letter — the American Sustainable Business Council, Business for Shared Prosperity, and the Main Street Alliance, a small-business group — find objectionable.
The advocates' most immediate concern is that Congress and the White House will end up locking the government into revenue-neutral corporate tax reform as the "step two" part of a fiscal cliff deal, which they believe would let corporations off the hook for deficit reduction. “The last thing we need is to freeze corporate taxes at this low level through revenue neutral corporate tax reform,” said Lew Prince, a St. Louis music-store owner who's part of the coalition.
Republicans, for their part, have argued that revenue-neutral tax reform carries another risk: lowered macroeconomic growth. "To be revenue-neutral takes away some of the very benefit you would get from serious tax reform on the corporate side –- which is to make our code more competitive by lowering the cost of doing business in America," Sen. Rob Portman said last year. So to get Republicans to agree to revenue-neutrality alone could be a struggle.