Congress is concerned about its low approval rating going into the 2014 elections. With tax reform to be a huge issue, the incumbent congress could be largely replaced with a crop of fresh political talent.

1. 2014 To Become Crucial Year for
Congressional Policymaking on
Tax Reform
October, 2013
The Capital Press

2. Tax Reform on the Horizon?
• Earlier this summer, The New York Times featured
a great article by David Leonhardt covering the
U.S. corporate tax system and the likelihood of its
reform in the near future. One of the main points in
the feature is the staggering variation in the
corporate tax rates for financial entities in various
sectors. Companies with quickly mobile items,
such as concentrate used to make soda, can
quickly move operations to low-tax territories.
Those with intangible capital like software
application production can structure their
accounting so that earnings are reported in low-tax
jurisdictions.

3. Top Corporations Disclose Tax
Rates
• According to information conducted by
financial research company S&P Capital IQ
(and also mentioned by the New York
Times),revealed the total tax rate (including
federal, state, local, and foreign taxes) of the
following businesses were: Amazon.com, 6
percent; Boeing, 7 percent; Apple, 14
percent; General Electric, 16 percent;
Google, 17 percent; eBay, 19 percent; and
FedEx, 23 percent. These tax rates are
astoundingly low when one considers that the
nominal U.S. corporate tax rate is 35 percent,
which does not take into consideration state
or civic taxes.

4. Low and High-Tax Jurisdictions
• On the other hand, businesses with brick-and-mortar operations,
commonly merchants, pay larger total tax rates: Wal-Mart, 31
percent; CVS, Best Buy, the Gap, and Whole Foods all ended up
with rates between 35 and 40 percent. Exxon Mobil, due mostly to
high foreign tax rates, paid 37 percent. Small businesses that do not
have international operations are not able to get an advantageous
tax rate by routing profits to a low-tax jurisdiction, although they can
of course pick to include in a specific U.S. state to lessen taxes.
• The trouble with the variation in exactly what should be a fixed
corporate tax rate is that the tax code is effectively choosing losers
and winners instead of leaving that choice to the free market. There
is no prepared reason for why the maker of soft drinks ought to be
taxed at a lower rate than the soft drink vendor. There is
considerable agreement throughout the political board that the
nominal corporate tax rate should be decreased (maybe to 25
percent) and particular deductions and tax credits eliminated;
although, whether that initiative must be revenue-neutral is the topic
of much controversy.

5. Lobbyists v. Leaders
• While there is bipartisan support for a new tax
code amongst political leaders, business lobbyists
could possible frustrate matters. Consider this: a
team of businesses named “Let’s Invest for
Tomorrow (LIFT)”, that includes brand names such
as Coke, Caterpillar and P&G, would like to move
the U.S. to a “territorial” tax system. Under this
system, the U.S. would only tax the part of a
business’s earnings that is earned as a direct
outcome of U.S. operations. Under the current
“worldwide” system of taxation, the U.S. imposes
tax law on U.S.-based businesses on their
worldwide profits but later grants them credit for
what’s paid to overseas governments.

6. Proposed Solutions,
Speculations• The problem with LIFT’s proposal is that it permits large entities to
simply transition their operations to low-tax foreign locations, while
smaller American companies pay far greater rates. Naturally,
accurate arguments can be made for lower tax rates, however it is
antithetical to modern taxation to tax large, U.S.-based multinational
companies at lower rates than smaller ones with exclusively
domestic operations, particularly when international businesses
heavily depend on advantages offered by the United States (a court
system with well established legal precedents and a vast, regulated
safeties market, for instance). The feature recognizes that a
compromise is possible; the U.S. could utilize a territorial system
while enforcing a minimum tax on U.S. companies. So if an
American soda-maker relocates their operation to another continent
and pays a tax rate of 3 percent, the U.S. could impose a tax on the
company’s revenues to the point that it is taxed a specified minimum
rate (for example, 15 percent) on its international revenues.
Policymakers have shown that the reform might be an essential part
of 2014’s plan. T.C.P
.

7. The Capital Press
http://thecapitalpress.com