Furchtgott-Roth: Shift Fiscal Cliff Talks to Common Ground — Corporate Tax Rate

Friday, 21 Dec 2012 09:33 AM

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Democrats and Republicans should tackle tax and spending reforms in the one area they tend to agree — lowering corporate tax rates, said Diana Furchtgott-Roth, a senior fellow at the Manhattan Institute.

President Barack Obama and House Republicans have been locking horns over the role income taxes should play to avoid the fiscal cliff, with no deal in sight.

Failure to avoid the fiscal cliff, a combination of expiring tax breaks and inbound spending cuts scheduled to take effect at the end of this year, could tip the country into a recession next year.

Editor's Note: The Final Turning Predicted for America. See Proof.

Greater focus on where the two sides tend to agree could produce more fruitful talks.

“So, rather than the power struggle of two titans over individual rates, House Speaker John Boehner and Obama could start with corporate tax reform, upon which there is far greater concurrence than individual tax reform,” Furchtgott-Roth wrote in a column appearing on MarketWatch.com.

The current corporate tax rate stands at 35 percent, though it comes hand in hand with a slew of loopholes.

Obama wants to cut that rate to 28 percent, while House Ways and Means Committee Chair Dave Camp, R-Mich., wants to see the rate fall to 25 percent.

While both sides disagree on specifics, such as switching from a worldwide tax system to a territorial one, which doesn’t tax businesses on overseas income, enough consensus exists to make real progress.

“America’s corporate tax rates are far higher than our Organization for Economic Co-operation and Development, or OECD, competitors, and we tax income on a worldwide rather than territorial basis. Corporations are holding $1.7 trillion offshore, and some would come back with a more competitive tax structure,” she wrote.

According to Furchtgott-Roth, the 35 percent tax rate the United States slaps on its businesses is the highest in the OECD, where the average corporate tax rate of member countries comes to 24 percent.

Cutting the tax rate would restore fiscal health in the United States by bringing in a welcome stream of revenue

“[A]nother advantage of corporate tax reform is that it will probably bring in revenue, at least in a dynamic sense. Bringing U.S. corporate tax rates in line with worldwide rates will attract some investment back to America and discourage other investments from leaving,” Furchtgott-Roth said.

“No one knows for sure how much of [the $1.7 trillion of earnings held offshore] would be repatriated with a lower U.S. tax rate, but corporations would surely repatriate more of it than they do now, adding to investment and employment.”

Corporate CEOs, meanwhile, have said corporate tax reform must play a bigger role in negotiations to avoid the fiscal cliff.

“In the negotiation to start this, you have to start from zero because everybody is going to have their pet deduction, their pet credit, whatever it is,” said Caterpillar CEO Douglas Oberhelman, according to NBC News

“But let’s all agree we start from zero, whatever that tax rate is, and go from there.”

Editor's Note:
The Final Turning Predicted for America. See Proof.

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