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Oct 11B2B CFO

Corporate Tax Reform is Overdue

Oct 11B2B CFO

The US Corporate Federal Tax rate tops out at 35% — That’s second only to Japan’s 39.5% rate for calendar year 2010 (Japan has gradually reduced their rate from roughly 50% in the 1990s – a 5% reduction was being contemplated (perhaps since passed) for 2011 that would put the US and Japan essentially on par).  Our top rate is 10% points higher than China and nearly triple Ireland’s.

Yet ….

  • General Electric had a pretty good year in 2010 with a profit of $14.2 billion, some $5.1 billion attributed to US operations.  Their US Corporate Tax tab …. $0.00.
  • Honeywell International reported that for the years 5 years ended 2010 they paid federal taxes in the United States equivalent to 15% of profits.
  • A Government Accountability Office (GAO) study released July 2008 for the years 1998 – 2005 (the wheels of government appear to turn a bit slowly and by the way that is the most current report of it’s kind) found that 55% of US Corporations paid no federal income tax in at least one of those 8 years.  55% did not lose money in those years!

The irony of all this is that through a myriad of typically US only tax breaks, accounting maneuvers that shift profits to low-tax countries, investing profits offshore, loopholes, lobbyists and other complexities that frequently only the largest companies benefit — hangs Main Street out to dry has turned the US into a “haven for US based multinational tax avoidance“.  Our rate that starts at the top, nets to an about average industrial country rate but results in US corporations paying in 1.3% of US Gross Domestic Product vs. the 2.5% of GDP that’s typical in other industrial countries.

Clearly there is something askew, there’s a very real disparity between GDP and corporate profits that are taxed here that is only partially explained by the many types of US businesses that elect to be taxed at the individual level.

The Flat Tax, Fair Tax, Ryan Plan and perhaps even the 9/9/9 plan each present some interesting substance that works towards simplification of the code and establishing an equitable basis.  I’d welcome seeing our elected leaders carefully considering reform and fixing our tax code that’s simply too complex and very inequitable — it’s long overdue.

PS – Did you notice the size of the red piece of pie in the receipts chart at the top?

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