For years, conservatives have been arguing that the United States ought to lower the top marginal tax rate and “broaden the base”—a careful euphemism for eliminating loopholes and deductions, many of which benefit the poor. Now, President Obama is putting that orthodoxy to the test, proposing an overhaul of the corporate tax code that would eliminate numerous loopholes and deductions while lowering the top rate to 28 percent. Since few large corporations pay anywhere near the current rate of 35 percent, an effective rate of 28 percent should amount to a tax hike for serial tax avoiders—and a revenue boost for the Treasury.
The proposed framework is not perfect—TCF budget policy analyst Andrew Fieldhouse has an excellent summary of the plan's merits and shortcomings here, and a follow-up post on debt financing here—but it's a step in the right direction, and there is a lot at stake. According to a press release this week from Citizens for Tax Justice, General Electric's latest SEC filing shows that the company paid “at most 2.3 percent of its $81.2 billion in U.S. pretax profits in federal income taxes over the last 10 years.” And GE is not alone—an earlier CTJ report revealed that 280 of the most profitable Fortune 500 companies paid an average rate of just 18.5 percent from 2008 to 2010, while 78 actually paid zero or less. All together, those 280 companies cost the United States nearly a quarter-trillion dollars in taxes that would otherwise have helped balance the federal budget. High profits and low taxes: this is why we need corporate tax reform.