Now that businesses have gotten just about every item they had on their tax wish list back in 1999 (and thought they'd never get), they have decided it's time to raise the ante and come up with some new ways that they could get more tax breaks (at the cost, undoubtedly, of higher taxes for ordinary Joes either now, or later to pay off the debt needed to finance the corporate tax breaks). A new coalition--called "America Gains"--has been formed to push for a change to the tax code that will reduce revenues in the long run (if not in the short term) but that the coalition will try to sell to Congress and the American people as a revenue raiser. See Alison Bennett, New Coalition to Push Reduced Tax Rate on Business Capital Gains as Revenue Raiser, 57 BNA Daily Tax Reporter March 26, 2007, at G-5.
The claim is that a lower rate on business capital gains will result in freeing assets that have been locked up because corporations keep the assets rather than selling them to avoid the purportedly too high regular corporate rat tax, and thus the sales, even at lower rates, would generate higher revenues. That hypothesis is doubtful, but--like the claim that the huge 2001 tax cut was first just a way to use a budget surplus (which had long evaporated by the time of the legislation) and then a way to generate economic growth (which tax cuts don't really do)--it's a selling point in a society that looks at spin rather than facts. Not surprisingly, the coalition appears to have been conceived in the context of a conference at the American Enterprise Institute, which has long stood for zero capital gains rates for everybody. Their argument is that labor should bear tax, and not capital. And not surprisingly, the coalition isn't going to tell us who's footing the bill--the members are a secret society. Leave it to that group to label as "punitive" the US corporate statutory rate that results in the US having tax haven status because it is actually among the developed countries at the very bottom in terms of effective tax rates, when all the loopholes and special provisions are taken into account.
Corporations already divest themselves of subsidiaries in very tax-effective ways, given the expansive reorganization provisions in the Code (and those have been administatively expanded under this tax administration). Do we want to encourage even more trading of stocks? I'm not so sure. Sometimes, as an ordinary person and not a tax lawyer, I think it would be awfully nice to know who owns companies and who really makes their products. Look at the disaster with Menu Foods in Canada making pet foods for scores of brands--people who thought they were buying one company's product over another's were really buying the same garbage laden with rat poison, as it turns out. So it may be that encouraging even more rapid turnovers of subsidiary corporate stocks would not be a good thing (if the bill would really have that impact).
Furthermore, given that many of the top 500 corporations have not been paying any tax at all, it is hard to see how the puny effective tax they do pay is "locking them out" from selling assets. It just doesn't wash. Congress needs to stop passing revenue reduction bills and start thinking about how best to provide health and elder care for all in a reasonable way.
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