Paul L. Caron

Tuesday, September 2, 2014

Businesses Are Winning Cat-and-Mouse Tax Game: 'Self-Help Tax Reform'

New York Times Deal Book:  Businesses Are Winning Cat-and-Mouse Tax Game, by David Gelles:

NY Times Dealbook (2013)A pharmaceutical company moved its headquarters to Ireland, sharply reducing its tax rate. A billboard company reclassified itself as a real estate concern, meaning it will no longer pay corporate taxes. And a big oil producer split itself in two, cleaving off a multibillion-dollar division that now operates tax-free.

Across corporate America, companies large and small are finding new ways to address one of the business world’s oldest irritations: paying taxes.

By exploiting existing loopholes and devising new ones, some of the country’s best-known companies are making it harder than ever for the federal government to replenish its already depleted coffers.

As a result, business income tax revenue remains stagnant at about 2 percent of gross domestic product even as corporate profits hit records.

Business taxes now make up less than 10 percent of federal revenue, and in some years as little as 6.6 percent. That is sharply down from the years after World War II, when about 30 percent of federal revenue came from corporate taxes.

The decline is the result of the rise of untraditional business structures, the effects of a more globalized economy and a labyrinth of subsidies and tax credits. And though the erosion has happened gradually over decades, the surging popularity of inversions — acquisitions of overseas companies that allow American corporations to reincorporate abroad — is raising concerns that an already precarious situation is growing untenable.

“There’s been a long, slow, steady decline,” said William G. Gale, co-director of the Urban-Brookings Tax Policy Center and an economic adviser to President George H. W. Bush. “It’s a confluence of a bunch of things, and it’s increasingly difficult to figure out how to effectively tax corporations.” ...

“It’s self-help tax reform,” said Kyle E. Pomerleau, an economist at the Tax Foundation. “If Congress is not willing to reform the corporate tax code, companies are going to do it for themselves.” ...

Republicans and Democrats in Congress and the White House all agree the country is overdue for comprehensive tax reform. The last big revision of the tax code came in 1986. Before that, the previous rewrite was in 1954. But ideas on how to proceed vary wildly, diminishing the likelihood of any rapid reforms.

“There’s no primitive law of nature that every 30 years they will revise the tax code,” Mr. Gale said. “I don’t see much in terms of comprehensive tax reform happening with this Congress and this administration. It feels like they’re done talking to one another.”

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