Tax Analysts Blog

Skyrocketing Public Debt Will Put More Pressure on Corporate Taxes

Posted on Jun 23, 2009

In the good old days (i.e., before 2008) the business tax game was simple: well-advised and well-represented corporations kept their taxes low through a combination of tax planning and technical lobbying of regulations and statutes. Countering these movements, liberals would score occasional victories with short bursts of "loophole" closing. But the clear trend at both the state and federal levels -- as evidenced by the huge decline in effective tax rates reported to shareholders and the corporate tax's shrinking share of the revenue pie -- has been toward reduced taxation of business.

It is hard to see how that trend can continue. The fiscal future will be nothing like the past because the national debt is growing at an unprecedented and unsustainable rate. Corporate America can continue playing the game of planning and lobbying -- and perhaps they can deflect a tax hike here and score a new tax break there. But can nickel-and-diming the fiscs still be a viable long-term strategy for keeping business taxes low?

I believe the answer is no. Each small tax-cut victory only adds to the pressure of a larger tax-hike backlash. In its first budget the Obama Administration proposed about $400 billion of business tax increases. Nobody expects even half of them to become law this year. But this is just the opening salvo. Obama has promised not to raise taxes on families with incomes below $250,000. He will likely have to break that pledge sometime in the future. But before he does, you better believe he will push hard for closing anything his staff can characterize as a "loophole."

Due to unrelenting budget pressures a storm of business tax hike proposals will be coming down the line over the next decade. If business groups -- like the U.S. Chamber of Commerce, the Business Roundtable, and the National Association of Manufacturers -- could get their acts together, they would push for major revenue-neutral tax reform before it is too late: lower the rates and get rid of the loopholes you know the Obama team sooner or later will target anyway. With an unreformed corporate tax, business is just serving up fodder for White House populist speechwriters who love to rail against "loopholes" and "abuses." By reforming corporate taxes, business would force revenue-needy officials to debate tax hikes on a higher plane -- in terms of its effects on America's competitiveness. That's a debate it has a far better chance of winning.

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