Director of Federal Tax Policy
We released a brief analysis of the President’s corporate tax reform framework this morning. Here’s the opening:
The Administration has advanced a coherent framework for corporate tax reform that could lead to a more efficient corporate tax regime. The framework’s main weakness is that it seeks no deficit-reduction contribution from corporate tax reform, aiming only for revenue neutrality.
Given the nation’s serious long-term budget problems and the painful sacrifices that policymakers will have to impose to put the budget on a sustainable path, it is imperative that all parts of the budget be on the table. A key test of well-designed corporate tax reform, therefore, is that it contributes to long-term deficit reduction; the Administration’s framework falls short in this critical area. The framework also lacks detail on how to achieve its revenue-neutrality goal.
To its credit, the Administration’s framework addresses the other key tests of successful corporate tax reform. It would impose a minimum tax on the overseas profits of U.S.-based firms to correct the tax code’s tilt in favor of overseas investments and to reduce corporations’ incentives to shift domestic profits to tax havens. It calls for reducing the tax code’s bias toward debt financing of corporate investments and for achieving greater parity between the tax treatment of large businesses with different corporate structures. Finally, it calls for the elimination of certain industry-specific tax subsidies.