The Administration appears to be holding back their Corporate-only tax reform plan until budget negotiators can settle on a deal to raise the debt ceiling. The Treasury Secretary is counting on congressional leaders to reach a long-term deal by the current August 2nd deadline, and then intends to move onto his corporate-only plan prior to the 2012 elections. At a speaking event in New York earlier this week he previewed the essential pitch:
“It’s a very hard thing to do because it will change the relative effective tax rates for different companies, different industries, but it’s an essential thing to do. Why should we want to live with a tax code where every year people don’t know what is going to be the tax preference for a certain activity? Why would we want to live with a tax code where ultimately it’s the quality of your lobbyist that determines a key part of the economics of your business? It makes no sense for the country.”
We agree with Secretary Geithner that there will be winners and losers under their proposal. As he says, effective rates will change. What he doesn’t say is that it is the public companies that are likely to benefit, while smaller, private businesses would be asked to pay more. That’s what really makes no sense for the country.
In terms of timing, it’s perfectly plausible that the current focus on the debt ceiling would cause a delay in the release of their tax reform plan. Treasury is the point on both issues and the resolution of the debt ceiling debate may have significant implications for the direction of tax policy.
Beyond the debt ceiling fight, another reason for holding off is that the policy people over at the White House may want to carefully review and perhaps change the plan before making it public. If that’s the case, we suggest starting over. Raising taxes on medium-sized companies headquartered in the United States in order to cut taxes for larger companies headquartered overseas makes no policy or political sense. It’s certainly not going to make us more competitive, nor increase employment opportunities–at least in this country.
What’s the alternative? As Robert Carroll’s study and subsequent testimony by several economists before the Ways and Means and Finance committees makes clear, moving U.S. employers away from the less competitive C corporation model is the best means of increasing investment and employment. The double tax faced by C corporations results in lower investment and employment in this country than if all businesses faced a single layer of tax. That would be real reform, and something we could all support.