Future of Corporate Tax Reform

English: "Revenue reform" train stop...

English: "Revenue reform" train stopped by "vested interests," "local issues," "trusts," and other poles. (Photo credit: Wikipedia)

With Congress returning from its Spring Recess next week, POLITICO reports on new developments between the public policy and business communities that may affect the future of corporate tax reform.

From the onset, Congress, the White House and big business all appeared generally to favor leveling the playing field among companies and encouraging global competitiveness by eliminating industry-specific tax breaks, with the goal of lowering the overall basic tax rate from 35% to 25%, says POLITICO.

However, as Congress began pursuing tax reform and soliciting input from the business community, POLITICO finds that some leading trade associations representing Fortune 500 companies appear now to favor industry-specific exemptions more than a decrease in their overall effective rate.

“This anxiety stems from the fact that while the current corporate tax rate is 35 percent, many companies can shave 10 to 15 percentage points, or more, off that number by taking advantage of special provisions in the code,” says POLITICO.

Industries as diverse as pharmaceutical, biotechnology, manufacturing and energy seek to maintain some aspects of their capital investment and R&D credits before signing off on a comprehensive tax reform bill.

The U.S. Chamber of Commerce, which represents more than 3 million businesses, said “provisions must be included in the [new corporate] code which allow businesses to more quickly recover their capital investments.”

“Failure to include such provisions,” the Chamber continued, “is likely to harm economic growth and job creation.” Cost-recovery provisions like accelerated depreciation are among “the most expensive loopholes” costing the federal government $52.3 billion in 2011, says POLITICO. Some of these provisions are specifically advantageous to the manufacturing industry, which deducts 9% of its taxable income or nearly $8.9 billion.

House Ways and Means Subcommittee Chairman Pat Tiberi (R-Ohio) said that businesses and trade organizations “are all excited that we’re looking at this opportunity, but they’re also nervous about what we might do.” He continued: “There are companies today that have an effective rate in the single digits who wouldn’t like the fact that we’re going to take away credits and deductions.”

POLITICO claims that “[House] Republicans don’t have a prayer of winning support from President Barack Obama and the Democrats who run the Senate if a tax-reform proposal ends up cutting revenue, so they’ll most likely have to go after those breaks to lower the rate.” But the authors believe Republican members on the Ways and Means Committee will gain enough outside support to produce a corporate tax reform bill later this year.

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