Don't Mess With Taxes

Talk of U.S. tax reform has begun with an examination of the country's corporate tax rate.

The loudest voices have been from companies complaining that the U.S. rate of 35 percent is among the highest in the world, second only to Japan.

That, say advocates of lower business taxes, is forcing companies to realign their operations to take advantage of global business tax havens.

But other voices began piping up when General Electric's 2010 tax situation became public last week.

The relatively high U.S. corporate tax rate didn't bother General Electric. Last year, the largest corporation in this country didn't pay any U.S. taxes.

In fact, GE ended up a net domestic tax winner in 2010 thanks to $3.2 billion in U.S. corporate tax credits.

What does that mean to efforts for tax reform, especially in the corporate realm? It depends on who makes the more convincing arguments … or comes up with the most campaign contributions.

Yes, Virginia, big business and politicians are long-time corporate tax break co-conspirators.

Still, lots of corporate tax reform recommendations are being floated, including one that would pay for a lower tax rate on big business by hiking taxes on investors.

A recent Tax Policy Center white paper says that that taxing capital gains and dividends as ordinary income at a top 28 percent rate (compared ot the current 15 percent rate) would allow for a cut in the corporate tax rate from 35 percent to about 26 percent.

That's similar to one of the proposals offered last fall by the panel on deficit reduction. The debt commission's basic argument is that for overall rates to come down, taxpayers must sacrifice tax breaks.

Right now, folks aren't talking about give and take when it comes to taxes. The country, or at least Capitol Hill, seems to be stuck on just cutting programs.

But eventually, lawmakers and taxpayers will have to face the reality of raising additional revenue, i.e., paying more taxes, from somewhere. When those discussions finally begin, we'll know that tax reform, both at the corporate and individual levels, is finally moving forward.

Related posts:

• Debt panel suggests major tax changes
• Deficit commission tax overhaul, take 2
• Up next for Obama: Tax system overhaul
• National Taxpayer Advocate calls for major tax reform

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