Back to Work - Bill Clinton [53]
In the future, we’ll have to design a progressive revenue system that relies more on personal income and consumption taxes, like the value-added tax, which also would help to increase our exports, because they escape the last step of tax, making our products more affordable in other markets.
For now, I think the Democrats and Republicans should work together to amend the corporate tax laws with the understanding that the tax rates would go down but the revenue wouldn’t, by broadening the tax base through the elimination and tightening of credits and deductions as the Simpson-Bowles Commission recommended. Remember, while our tax rate is 35 percent, our tax take is 23 percent of corporate income, because of a wide array of credits and deductions that reduce some big corporations’ tax burden to less than 20 percent of income. If the percentage of income we take is competitive, why do we need to change? Because the benefits of the credits and deductions are unevenly distributed and often go to companies that won’t, or can’t, create nearly as many jobs in the United States as companies that actually pay the higher rate.
While writing this book, I learned that many large U.S.–based companies publish their overall employment figures but don’t break them down by country. Apparently, they’re concerned about bad publicity. Andrew Liveris published Dow’s numbers in his book, but he’s proud of the fact that Dow has 40 percent of its employment in the United States compared with one-third of its sales here. It would be helpful to know how companies claiming large credits and deductions rank in the ratio of employment to sales in the United States. Then we could design a corporate tax reform proposal that would target more tax relief to the job creators.
I do disagree with one element of the Simpson-Bowles plan. I think we should keep the research and development incentive and increase it. It will more than pay for itself, because more and more companies want their research operations located near their factories, to get the quickest possible feedback and implementation of positive discoveries.
5. Let companies repatriate the cash now with no tax liability if it’s reinvested to create new jobs. Even if the two parties agree to work together in good faith, it could take a year or more to reform the corporate tax laws. Meanwhile, I think we should make another effort to bring a lot of the overseas earnings of U.S. companies back home. The 2004 effort to do this, which gave corporations a grace period to repatriate money and have it taxed at a 5.25 percent rate, was widely considered a bust, because almost none of the money was invested to create new jobs. Instead, most of it went to pay dividends, buy back stocks to raise their price, and increase executive pay. The three companies that repatriated the most cash, 20 percent of the total, actually cut thirty thousand jobs in the United States. While the government did get a onetime increase in revenues, it’s estimated that the Treasury lost $80 billion over a decade on money that would have trickled back into the United States, even at the higher rate.
We now know that since all other wealthy nations have abandoned taxing the income their corporations earn in other countries, we’re not going to get that $80 billion. Therefore, I think the president should offer U.S. companies a three-part deal: (1) an honest effort to work with Congress to develop a competitive corporate tax system, with lower rates that will save money for most companies while requiring those paying far below the average rate of 23 percent to pay their fair share; (2) the ability to repatriate the money now and do whatever they want with it, though at a higher rate than the 2004 tax holiday rate, say 15 or 20 percent, with the money going to seed an infrastructure bank or, if that can’t be done, to fund infrastructure grants to states; and (3) the ability to repatriate with no tax liability any funds they can prove are spent to increase net