CBPP Lays Out Principles for Corporate Tax Reform

Deficit Reduction Is One of Six Standards in Center’s Checklist for Reforming Federal Business Taxes

As we noted in a previous blog post, President Obama has elevated the issue of corporate tax reform by proposing a revenue-neutral package of changes to the corporate income tax code. The issue of business taxes is likely to get a lot of debate this year in Congress and on the campaign trail.

With that in mind, the Center on Budget and Policy Priorities issued a paper today with a six principles for evaluating proposals for corporate tax reform. CBPP says that federal legislation to reform taxes on businesses should meet these criteria:

• Contribute to long-term deficit reduction;
• Reduce the tax code's bias toward overseas investments;
• Improve economic efficiency by reducing special preferences;
• Provide more neutral treatment of corporate and non-corporate businesses;
• Reduce the tax code's bias towards debt financing; and
• Take specific steps to discourage tax sheltering.

The CBPP report summarizes data showing that federal corporate income tax revenue has fallen dramatically since the early 1950s. For example, that revenue source amounted to an average of 4.7% of gross domestic product (GDP) in the 1950s, but by 2010 had dropped to just a little above 1% of GDP. It also notes that average U.S. corporate taxes are also low by international standards.

See the CBPP report for a more detailed explanation of their principles for reform. See also the New York Times editorial yesterday, which makes the case for reforming business taxes and calls the President’s preliminary plan “a welcome start for a much-needed debate on comprehensive tax reform.”  However, that editorial also raises the concern that the plan doesn’t address deficit reduction and observes that vigilance will be need to keep the process of reforming corporate taxes from being “hijacked by powerful corporations and their high-paid lobbyists.”

Jon Peacock