Liberal group: Use tax reform to reduce deficit

A labor-backed group has said that President Obama’s call for corporate tax reform was “half right, half wrong,” arguing that an overhaul of the tax code should be used to pay down the deficit.

In his State of the Union address on Tuesday night, the president identified revamping the corporate tax code as a way to help American companies compete, but stressed that any reform should not add to the national debt. 

But in a report released Tuesday, Citizens for Tax Justice — which played a role in the last major overhaul of the tax code 25 years ago — contended that out-of-touch officials in Washington thought a lower corporate rate should be the main goal of reform and that it was wrong to think that decreasing the corporate rate could spark the economy. 

“This kind of thinking is particularly bizarre when our government is in dire need of additional revenue to reduce the budget deficit,” the liberal group’s report said. “One would think that politicians would gravitate towards revenue-raising measures that the public approves. But instead, Congress is contemplating all sorts of program cuts that the public will have a hard time digesting.”

Revenue collection does appear to be emerging as a possible sticking point in the debate over tax reform, which has so far gathered general support from officials in both parties. But as of now, that conversation is centering on whether a reform plan should at first break even when it comes to revenue.

Democrats have tended to agree with the president that a tax code overhaul should be revenue-neutral. But Republicans and some business leaders have generally maintained that tax reform should concentrate more on increasing competitiveness by lowering America’s statutory corporate rate, which is scheduled to soon become the highest in the developed world.

Robert McDonald, the chief executive of Procter & Gamble, said at a House Ways and Means Committee hearing last week that business leaders were asking to take revenue-neutrality “off the table for now.”

“I think if we work together, we can develop a competitive tax system for this country and do it in a fiscally responsible way,” McDonald said.

But in its report, Citizens for Tax Justice argues that — because of loopholes and tax breaks — what corporations actually pay in taxes is comparatively low, citing a Treasury Department report from 2007 that says the U.S. “takes a below-average share of corporate income in taxes.”

The group also suggested corporate tax provisions that Congress could eliminate, including companies’ ability to defer paying taxes on income gained outside the U.S. until those profits are repatriated.