(photo: by © Royalty-Free/Corbis)

Sometime in the next month, the Obama Administration plans to release a corporate tax reform proposal. You would be forgiven for thinking that jobs or even the budget deficit will consume the time and effort of Washington over the course of the next year. It will be this corporate tax reform. Just think about the new standard revealed by Ryan Grim and Zach Carter’s excellent article on swipe fees: Congress mainly engages in managing disputes between corporate interests. And there’s no bigger dispute than how much corporations are taxed.

Alison Kilkenny notes that the proposal calls for lowering the nominal corporate tax rate – perhaps to 30%, perhaps to 26% – while broadening the base by removing loopholes and deductions. This revenue-neutral idea only makes sense if you think that the US collects a proper amount of corporate tax revenue relative to the rest of the world. Actually, it collects about half as much.

Kilkenny contrasts this vigor to lower the nominal tax rate with the record profits from US corporations:

The surge in unemployment comes at a time when US corporations are more profitable than ever. The end of 2010 saw some of the biggest gains in the business world, according to data from the federal Bureau of Economic Analysis. Corporations reported an annualized profit of $1.68 trillion in the fourth quarter, up from the previous record of $1.65 trillion in the third quarter of 2006.

In the first quarter of 2011, Exxon-Mobil, the world’s biggest and most profitable corporation, raked in $10.7 billion. That’s a 69 percent increase over the same quarter last year, and the highest quarterly profit since 2008. This is happening during a time when citizens are searching underneath the couch cushions to scrape together enough change in order to fill their gas tanks so they can go file for unemployment benefits.

Exxon also happens to be one of US Uncut’s top targets. The oil giant uses offshore subsidiaries in the Caribbean to avoid paying taxes in the United States. The company paid zero US income tax in 2009, while enjoying billions in taxpayer-funded subsidies and its CEO’s total compensation reached over $29 million.

Given the ways in which corporate lobbyists essentially write their own tax code, any hope that reducing the rate will result in a revenue-neutral reform seems fanciful to me. They will close some loopholes while opening others.

And by the way, this is the same dynamic in the individual tax code. Conservatives keep banging the drum on high corporate tax rates while ignoring that the effective tax rate is low. And conservatives keep banging the drum on high individual tax rates when overall taxes are at the lowest level since 1958. It’s just a pack of lies, and yet the response is either a revenue-neutral reform in the case of corporate taxes, or carving out one piece (income tax rates on those making $250,000 and up) in the case of individual taxes, while turning away from, say dividend rates, or capital gains, or carried interest. The tax code has a lot of inefficiencies in it, but the question of making something “revenue neutral” is the wrong one. Rather, we should ask ourselves: what needs to be done, how are we able to finance it, what is the acceptable level of revenue for that, and how much can we float as debt? But this would be too sensible.

David Dayen

David Dayen