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LET’S TRY TO ANSWER THAT: One Monday ago, Weekly Tax asked the question of how to compare America’s corporate tax collections to its major trading partners — given that the vast majority of businesses here aren’t taxed as corporations.
And since then, we got some answers.
First up: The Treasury Department’s case is that it “collects less in corporate tax revenues as a share of GDP than almost any advanced economy,” and that corporate collections have taken a particularly steep drop since Republicans passed the 2017 tax law, HR 1.
But a new article at Bloomberg Tax from Kyle Pomerleau of the right-leaning American Enterprise Institute and Donald Schneider of Cornerstone Macro argues that first statistic doesn’t tell the whole story.
Pomerleau and Schneider, who was also senior economist at House Ways and Means when Republicans controlled Congress, found that the U.S. currently was about average in corporate tax burden among Organization for Economic Cooperation and Development countries, when taking into account America’s sizable pass-through sector and other factors.
And what if President Joe Biden got his full suite of corporate tax hikes — including raising the corporate rate from 21 percent to 28 percent and placing a minimum tax on companies’ book income — passed into law?
That would push the U.S. to behind only France, Belgium and Switzerland in adjusted corporate tax collections among advanced economies, according to Pomerleau and Schneider — though it’s worth noting that it wouldn’t bring corporate revenues completely back to pre-Tax Cuts and Jobs Act levels.
And to be clear: Pomerleau and Schneider wrote that it’s not just the number of businesses that pay taxes through their owners’ returns — which is more than nine out of 10 companies, according to IRS data — that has to be accounted for when adjusting corporate tax collections.
Another factor, for instance, is that the U.S. has a smaller corporate tax base because of a relatively high labor share of corporate output. (In layman’s terms, worker pay here is a fairly large percentage of corporate output.)
MORE ON THAT IN A BIT, but first — thanks for joining us once more for Weekly Tax, where we will be hoping to find the tax angle for this new soccer Super League.
We’re a day late to this, but who doesn’t love a little terror to start the week: Yesterday marked 34 years since a skydiving instructor in Phoenix named Gregory Robertson flew “like Superman” to pull the parachute of a woman knocked unconscious during a jump.
Somebody save us, and send over some scoops.
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You can also reach us on Twitter at @berniebecker3 , @aaronelorenzo, @tobyeckert, @Brian_Faler, @POLITICOPro and@Morning_Tax.
A message from the National Association of Manufacturers:
Manufacturers are ready to lead the country’s post-pandemic economic recovery. But a new study published by the National Association of Manufacturers finds that proposed tax hikes would cost one million jobs in just the first two years of implementation. If Congress moves forward with these tax increases, job creation and manufacturing growth will be imperiled. Learn more at nam.org/protectmfgjobs.
ALSO WORTH PONDERING: Data shows that a relatively low percentage of business profits in the U.S. flow to traditional corporations compared to other countries, but also that America isn’t a total outlier in that area.
For instance, the OECD found back in 2015 that single-taxed businesses (the equivalent of pass-throughs) had a higher amount of taxable business income than corporations in Austria and Germany, with it being split down the middle in the U.S.
And yet, other countries with robust non-corporate sectors collect a lot more corporate tax revenue than the U.S., as pointed out by Tom Neubig, a former deputy head of the OECD’s tax policy and statistics division.
Corporate tax revenue as a percentage of GDP was 2.1 percent in Germany — more than double the U.S.’s 1 percent — in 2018, the first year that the GOP tax law was in effect.
Plus, Neubig noted that collections were also higher in four other countries where traditional corporations have less than three-quarters of business profits, in arguing that the U.S. certainly had the space to increase corporate taxes. (Those four countries would be Austria, Denmark, Italy and New Zealand.)
SPEAKING OF WHICH: The horse trading over corporate tax increases in the infrastructure package is far, far from over, but would you believe that might actually be the easier part?
The Biden administration is looking at tax increases on wealthy individuals to pay for the second part of the infrastructure package, which will focus on issues like education and paid leave, as our Megan Cassella and Brian Faler reported.
Polling suggests that taxing the rich and corporations are both popular, but Democrats are concerned that doing the first might be a tougher needle to thread than the second — while Republicans believe both will end up unpopular once Biden’s ideas are more fully vetted.
Some of the complicating factors here aren’t exactly new, either — including the potential for lawmakers representing places like San Francisco (home to the House speaker) and New York (home to the Senate majority leader) to believe that constituents making around Biden’s magic number of $400,000 a year aren’t terribly rich for their areas.
And don’t forget SALT: There’s now a bipartisan push among blue state lawmakers to roll back the tax law’s $10,000 cap on state and local deductions, something that would largely benefit the wealthy.
Odds and ends: Sen. John Cornyn (R-Texas) suggested that Republicans would be open to a slimmer, bipartisan infrastructure package on “Fox News Sunday,” as The Wall Street Journal’s John McKinnon noted — while Sen. Chris Coons (D-Del.) said on the same show that could allow Democrats to pass the more controversial policies they’re considering through budget reconciliation. Biden is scheduled to meet with a bipartisan group on infrastructure today.
And finally, Axios reported that the Democrats’ march to a potential 25 percent corporate rate continues — and not just because that’s what Sen. Joe Manchin of West Virginia wants.
CHECKING IN ON THE OECD: Irish officials are being publicly cautious about the Biden administration’s efforts to move toward a global tax deal, including a potential 21 percent minimum tax. (The general response: Concern about those proposals, along with noting that reaching an agreement would be quite the positive.)
But in and around Dublin, some deeper concern is popping up about the status of Ireland’s 12.5 percent corporate rate, our Shawn Pogatchnik noted. “We’ve been saying forever: We’ll never touch 12 point 5. But there’s little practical point in continuing to draw that line in the sand if the OECD tide is finally coming in,” as one senior official put it.
MISSING THE GOAL: Soccer stars — or their estates, at least — are among those trying to take a pass on paying Argentina’s new wealth tax, Bloomberg reports. Diego Maradona’s heirs and Carlos Tevez are the latest to file court injunctions against paying the one-time tax that is supposed to apply to anyone with at least $2.2 million in assets — around 13,000 people, in theory. But with Friday the deadline to pay, the tax has only raised some 6 billion pesos (around $65 million), or about 2 percent of the original estimate. Tevez’s filing, one of dozens filed by rich Argentines, challenges the constitutionality of the tax. For his part, Maradona endorsed the tax before dying in November.
Up to the north: Colombia is also moving to tax the rich, Bloomberg notes — as it seeks to battle the fallout from the coronavirus, including budget deficits and increasing poverty. Among the proposals there: A wealth tax and a one-time levy on high salaries.
CAN’T GET IT PAST HER: Gov. Laura Kelly of Kansas continued her habit of blocking GOP tax cuts with a Friday veto, The Associated Press reports. The big question now is whether that veto will stick, once lawmakers come back to Topeka next month — the tax cut bill passed the Senate with a veto-proof majority, but was three votes short in the House. In all, this newest measure would cut taxes by some $284 million over three years, by increasing the standard deduction for individuals and offering relief to people and businesses who are paying more in state taxes because of the 2017 tax law. Kelly, who has cited the budget problems caused by the tax cuts enacted under former Gov. Sam Brownback in opposing GOP tax cuts multiple times in the last two years, has said that she’d be open to raising the standard deduction — if that was paired with a revenue-raiser, like imposing the state sales tax on digital streaming products. But GOP leaders in the legislature are firmly against that idea.
The Justice Department is suing Roger Stone, the longtime Donald Trump adviser, over some $2 million in unpaid taxes.
Nina Olson, the former national taxpayer advocate, wondered where that new $1 trillion tax gap estimate from the IRS came from.
NYT editorial board: “Make Tax-Dodging Companies Pay for Biden’s Infrastructure Plan.”
A message from the National Association of Manufacturers:
The National Association of Manufacturers worked with Rice University economists to examine proposed tax increases, including a 28% corporate tax rate, and the results are clear: the tax hikes would give other countries a clear advantage, mean 1 million fewer jobs in the first two years, reduced investment in American communities and slow economic growth. After the 2017 tax reform, manufacturers kept their promises to raise wages and benefits, hire new workers and invest in communities. It’s time to build on that progress, not roll it back. Manufacturers support President Biden’s focus on modernizing infrastructure, but that doesn’t require destructive tax hikes. The NAM’s “Building to Win” plan provides multiple options for better revenue sources. Let’s follow that playbook and protect American jobs so that together we can build the next, post-pandemic world. Learn more at nam.org/protectmfgjobs and nam.org/buildingtowin.
Fair enough: The word parachute comes from the French for “to protect from a fall.”
