On Capitol Hill, companies want tax rate cut, but it’s unclear whose ox will be gored
Companies that you might call “winners” under the complex U.S. tax code – such as General Electric and some pharmaceutical companies which tend to pay a much lower rate than the standard 35 percent corporate tax rate – were not there.
Those you might call losers, brand name companies paying close to the top 35 percent — like FedEx and Time Warner — were. They all agree to cut the rate — no surprise there — but there was little consensus on what they would give up in return.
FedEx corporate tax vice president Michael Fryt, who said the company has not had an effective tax rate below 35 percent for two decades, called for a rate around 25 percent.
The hearing was ostensibly about the interplay between financial accounting and tax policy, but the real question was this: what deductions are companies willing to give up for a lower rate?
“It is a question of whose ox is being gored,” said Charles Rangel, a Democrat on the House Ways and Means committee, which held the hearing.
Some said it would be hard to give up treasured tax breaks like accelerated depreciation because of their positive impact on cash flow.
“Cash is king,” said Timothy Heenan, vice president of treasury and tax at Praxair, the biggest industrial gas company in North America. “If we’re going to remove accelerated depreciation in favor of a lower rate we have to weight what it will do for investment decisions.”
Translation: without that cash, companies might not be able to invest as much in new drilling and other activities.
Before long, the hearing turned into a sparring match between Republicans on the panel, who have touted a 25 percent rate, and Democrats, who cited a congressional study estimating it might be difficult to get to a 25 percent rate, even with the elimination of all corporate tax benefits.
Republicans say the study by the Joint Committee on Taxation is incomplete. They note the report said that not all estimates were available at the time.
Ways and Means committee chairman Dave Camp has called for a 25 percent rate, noting that when Japan lowers it rate later this year, the United States will have the highest rate among its industrialized peers.
“This dubious distinction will make it that much more challenging to attract businesses to hire and invest here at home where we need jobs,” Camp said at the hearing.
While President Barack Obama and many Republicans say they want tax reform, it will be after the election at least before real proposals emerge that will lead companies to go beyond saying that “a 25 percent rate would be great” to talk about their real issues around the possible removal of cherished tax breaks.
Most of that sparring will happen behind closed doors.