The Treasury Department’s message to tax writers who might want to lower the corporate tax rate to the lowest percentage possible echoes what millions of teenagers have heard from their parents for decades: Don’t give in to the peer pressure.
Robert Stack, the deputy assistant secretary of Treasury for international tax affairs, said Tuesday at a Brookings Institution symposium that U.S. fiscal and macroeconomic constraints differ from those in other countries that have lower corporate rates. Therefore Washington shouldn’t join a “race to the bottom” to determine who can have the lowest rate.
According to the Tax Foundation, the United States currently has the third highest marginal corporate tax rate in the world, at around 39 percent. The worldwide average is about 23 percent. Tax writers, economists, and politicians from both parties generally agree that the corporate rate needs to be lowered, but they disagree about how to do so without hurting federal coffers.
For the administration, reducing corporate rates to compete internationally would upset the country’s delicate and recovering economy. “As I recall, having been the parent of teenage sons, it hit me, I heard these arguments before: ‘Mom, Dad, everyone else’s parents are letting them do such and such. You should too,’” Stack said. “And failure to acquiesce to whatever it was we were being asked to go along with always was purported to result in the direct consequences.”
Barbara Angus, the top GOP tax counsel on the House Ways and Means Committee, struck a similar tone in separate remarks at the same event.
Angus said that international tax policymaking needs to be driven by better understanding what other countries are doing, and why they’re doing it. “But it doesn’t mean that any of those choices are right for the U.S.,” she said. “Our choices just need to be informed by what’s happening in the rest of the world.”
The Obama administration agrees with Republicans that a lower corporate tax rate and a broader tax base is necessary to address the current international tax imbalance, which causes U.S. firms to keep money in overseas subsidiaries with lower rates.
But that’s no reason, according to Stack, for Washington to not take into account the overall fiscal situation. It also makes no sense for Republicans to also push for changes that decrease federal revenue.
The arguments that corporate taxes are too high, he said, ignore statistics that show, for example, that the ratio between the current level of corporate taxation and the gross domestic product is actually lower than it has been in the past.
“I do not buy into the notion that the U.S. must willy-nilly do what everyone else is doing, because we have our own unique circumstances and fiscal challenges that need to be taken into account as we do the responsible thing for our country,” he said.
Stack also said private sector groups and nongovernment organizations need to be more involved in the debate, given the role globalization has played in tax policy.
For that reason, policymakers need to hear from multilateral organizations like the Organization for Economic Cooperation and Development and the G20, both of which wield strong influence over tax policy. Multinational corporations also need to get more involved in the international debate, he said.
“We are long past the days, if they ever existed, when Congress and the executive branch were the only players of importance with respect to U.S. international tax policy,” he said. “Globalization and the emerging political structures that support it have brought these issues to the world stage, and the actions of each country have effects beyond its borders that must be taken into account as we build an international tax policy for the years ahead.”