Big Business vs. corporate tax cuts 

President Obama has spoken about simplifying the tax code and cutting tax rates. I've pointed to things in his record that make me doubt he's serious about it. But even if Obama is serious, there's another big obstacle to tax reform: the Big Business lobby that profits off a complex tax code which picks winners and losers.

Scott Hodge at the Tax Foundation points to a Bloomberg story reporting:

Whirlpool Corp. will claim $300 million this year in U.S. tax credits for making energy- efficient appliances, collecting almost four times the government's estimate for what all companies would receive from the tax incentive.  The credit will generate about one-third of Whirlpool's earnings this year, according to the company's projections.

Hodge responds with three important points:

1) For Whirlpool, the benefits of the energy credit is no different than role the EITC serves for a poor family - an income subsidy.

2) Secondly, as we have seen with the tax credits for hybrid vehicles and the home-buyer's credit, these industries become dependent upon the credit to drive sales and will fight to the death to keep the credit from expiring....

3) Lastly, the stockpiling of tax credits has a perverse effect on company's attitudes toward corporate tax reform. These credits are booked as "assets" on the company's balance sheet and have a value linked to the corporate tax rate of 35 percent. Should the corporate tax rate be lowered, to say 25 percent, then their value will fall by about one-third, directly impacting the book value of the company. What CEO wants that?

This final point plays into a discussion I've had with many fellow conservatives about whether targeted tax credits count as corporate welfare, or subsidies, and whether their repeal can ever be supported. Seems to me that tax carveouts often create a constituency for higher tax rates.

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Timothy P. Carney

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