Today Citizens for Tax Justice submitted comments to the Senate Finance Committee on the discussion draft that the committee recently published under the direction of its chairman, Max Baucus of Montana. Tax reform seems to be on hold, with Baucus’s expected departure to serve as ambassador to China being just one of many complications. But the discussion draft may nonetheless be a starting place for future debates on how the corporate tax should be overhauled.
And that would pose problems because, as CTJ’s comments explain, Baucus’s discussion draft fails to accomplish what should be three goals for tax reform:
1. Raise revenue from the corporate income tax and the personal income tax.
2. Make the tax code more progressive.
3.Tax American corporations’ domestic and offshore profits at the same time and at the same rate.
As CTJ’s comments explain, the discussion draft would, in a proclaimed revenue-neutral manner, impose U.S. corporate taxes on offshore corporate profits in the year that they are earned. But it would do so at a lower rate than applies to domestic corporate profits.
The goal of revenue-neutrality causes the discussion draft to fail the first goal of raising revenue as well as the second, because any increase in corporate income tax revenue would make our tax system more progressive. The discussion draft also fails to meet the third goal. Although it would tax domestic corporate profits and offshore corporate profits at the same time, it would subject the offshore profits to a lower rate, preserving some of the incentive for corporations to shift investment (and jobs) offshore or to engage in accounting gimmicks to make their U.S. profits appear to be generated in offshore tax havens.