The supercommittee went belly-up because Democrats demanded huge tax increases before they would give ground on even the smallest of spending cuts. Hope for corporate tax reform was thought to have died with the failed congressional deficit-reduction body until some of its Republican members revived the plan.
Sen. Rob Portman is drafting pro-growth legislation that would lower the top rate companies pay and move to a territorial tax system. He said “a number” of his Democratic colleagues have approached him this week to express support. “I’m definitely not giving up,” the Ohio Republican told The Washington Times in an interview.
That’s a good thing, because at 39.2 percent, our combined federal and state corporate tax burden is second only to Japan’s among developed countries, whose average rate is 25 percent. Mr. Portman’s bill would lower the top federal rate from 35 percent to 25 percent. At the same time, the proposal would broaden the tax base by eliminating many preferences and exemptions that allow companies such as General Electric and Bank of America get away without paying income taxes.
The Joint Committee on Taxation already has scored the bill as deficit neutral, but that’s on a static basis. As Mr. Portman said, “When you take into account the growth that is going to occur, it will result in more revenue. And that’s the kind of revenue Republicans like to see, which is from economic growth, not from more onerous taxes.”
As a former U.S. Trade Representative, Mr. Portman knows the importance of ditching the system that forces companies to pay taxes on profits both in the local country and again when the money is repatriated. It creates a perverse incentive for corporate America to leave profits, estimated at $1 trillion, overseas.
On the House side, Ways and Means Committee Chairman Dave Camp, a Michigan Republican and supercommittee member, had the lower rate included in the House budget. The tax-writing committee is planning more hearings next week and legislation next year.
All the Republican presidential candidates have said they would lower the corporate tax rate and shift to a territorial system. Mitt Romney and moderate Jon Huntsman Jr. also would lower the federal rate to 25 percent, but the others would go lower. Rick Perry’s figure is 20 percent, Ron Paul’s is 15, Newt Gingrich’s is 12.5, and Herman Cain’s is 9.
Ryan Ellis, tax policy director at Americans for Tax Reform, says this doesn’t go far enough because companies still have to pay the average 6.4 percent in state taxes. “Cutting the rate to 25 is a good start, but it doesn’t get the job done,” he said. “We would still have a rate higher than the developed-nation average. In order to match that average, our federal corporate income tax rate must come down to 20 or less.”
Mr. Portman is hopeful that his proposal could move on must-pass legislation like the new continuing resolution or the extension of the George W. Bush tax rates. Democrats ought to consider that their re-election prospects are tied to an economy that needs serious tax reform to promote recovery.
Emily Miller is a senior editor for the Opinion pages at The Washington Times.