CEOs of large American companies would like their companies to pay less in corporate income taxes. That’s sensible enough. I’d like to pay less taxes, and if I were a CEO (or even a lowly CFO or COO or pretty much anything with a “C” in front of it) I’d like to pay less taxes too. But the problem with proposals to reduce taxes on someone is that someone’s ox has to get gored in response.
And a proposal for who to gore is exactly what you don’t see at USAHomecourt.org, aka the home page of the Campaign for Home Court Advantage, aka A Bunch of CEOs Who Want Their Taxes Cut And Don’t Realize That Baseball Isn’t Played On A “Court”.
Now on the merits they have two big ideas. One is that the United States should switch to what’s called a “territorial” tax system where it claims no right to tax the foreign-earned profits of corporations that are domiciled in the United States. The other is that the statutory rate should be reduced to a top combined state and federal rate of 25 percent. In combination, this would be a pretty big tax cut. And believe me, I sympathize. I am not a fan of the corporate income tax and I’d be all for scrapping it in favor of higher taxes on dividends and high-income individuals. But the second half of that proposition where we scrap it in favor of higher taxes on dividends and high-income individuals is an important part. More broadly, when you hear of proposals for “tax reform” that will lower rates and close loopholes the part where you close the loopholes is an important part.
That stuff’s important because unless you know what the offsets are, you can’t evaluate the proposal. In the House Republicans’ most recent budget plan, tax cuts are rendered affordable by taking food and medicine away from poor children. That’s rather different from a proposal where tax cuts are rendered affordable via higher taxes on dividend income. Different oxes. Urging Minnesotans to “hit a grand slam” or a strained metaphor about how cutting taxes on “foreign earnings will encourage American companies to bring their earnings home, invest more in the American economy and bring more American workers off the bench and back into the game” does not answer any of the important questions here. We actually tried a “holiday” on repatriating foreign earnings in the not-too-distant past, so we actually know what will happen, namely firms will use the money to pay dividends and do share buybacks. And of course that’s what they’ll do. Large profitable American companies such as Apple and Boeing are not cash-constrained in their ability to finance investments, they’re constrained by the finite supply of profitable ideas about things to invest in.
But, again, using a territorial system isn’t a crazy idea. Lots of countries do it. But the difficulty with making the switch has nothing to do with tortured sports metaphors and everything to do with the practical difficulty of paying for it. Business leaders who want a tax cut should show their cards. If they get their wish, who pays?