President Obama would like to see the US Debt reduced by $4 trillion over the next 10 years. And he would like to see it fairly balanced, with both wise cost cuts and smart tax revenue increases.
Let’s say a fair split is $3 of cost cuts for every $1 of additional tax revenue. I think it’s fairly easy, albeit with much pain, to get to the $3 trillion of cost cuts. The $1 trillion of additional tax revenue is the stumbling block.
It is only reasonable that a substantial majority of the $1 trillion of additional tax revenues has to be the closing of Big Corp Tax Loopholes. There are so many of these, and the dollars involved are substantial.
But the fact of the matter is that Big Corps are so powerful, and some of the Big Corp community has as their point man for their interests, Eric Cantor, who despite the disastrous consequences to the country, stubbornly refuses to enter into any fair-minded, reasonable compromise with the President.
Cantor, and the Big Corps behind him, assume that President Obama will cave in on these $1 trillion of additional tax revenues. I think they are mistaken. They underestimate Obama’s resolve. Obama knows that he is on the right side of history here, and also has the support of the majority of the American people, and frankly, also has the support of a significant portion of the entire business community, both big and small.
To reach a good solution for all parties, here's what I would consider doing to solve this impasse.....I would consider taking steps to soften the economic damage to Big Corps of the Tax Loophole Closings.
First, as part of this Debt Ceiling Deal, there are job creating ideas that I, and many others, have proposed that clearly benefit Big Corps due to the substantial corporate tax benefits they would receive that are included as integral parts of the Debt Ceiling Deal.
When you click on the Blog Archive July 2011 Article at the right called "Debt Ceiling Deal Needs Bolder, More Targeted Job Creation", there are seven really fine job creating ideas, which are all wisely 100% paid for, and which are triggered by huge tax incentives given to Big Corps:
#8) Jobs Tax Credit
#2) Accelerated Building Tax Depreciation
#3) Energy Tax Credit on Commercial Green Retrofits
#6) Infrastructure Investments Funded by Foreign Earnings Repatriation Tax
#9) 100% Tax Expensing of Equipment Purchased in 2012
#7) Tax Incentive to Write Down Underwater Home Mortgages
#10) Marketing, Selling and Advertising Bump
Second, in deriving the Big Corp Tax Loophole Closers, I think the focus should be on selecting ones that are temporary tax differences, and thus the reported earnings impact to Big Corps is modest.
Third, I think one of the Big Corp Tax Loophole Closers should be making estimated US federal income tax deposits on all open IRS tax audits. The Big Corps have already booked the estimated tax liability they think they owe on these open IRS tax audits. Thus there would be no earnings impact, nor negative economic impact, to Big Corps in making these estimated tax deposits, since they have already booked the estimated tax liability on the open IRS Revenue Agent Reviews. And the funding here could be a very significant portion of the $1 trillion over the next 10 years.
And fourth, and probably even more important than the other three above, there is another way to wisely soften the economic damage to Big Corps of agreeing to some of these Big Corp Tax Loophole Closers. Let me explain.
I think if you would ask the majority of Big Multinational Corps what they would want more than anything else in the income tax area, it’s to be able to get their hands on some of their foreign earnings, which are parked overseas, and to do so without incurring substantial US federal income tax. The problem is that in order to do that, when the foreign earnings are repatriated to the US as dividends, they are grossed up, and income taxed in the US at a 35% federal income tax rate.
Thus, what I would consider doing is to allowing some of the Corporate Tax Loopholes that are to be closed as part of this Debt Ceiling Deal to be paid for by a like amount of US federal income tax owed on foreign earnings repatriated.
And to make it even more attractive to Big Corps, I would let these Big Corps repatriate these earnings in 2011 and in 2012, and the resultant US federal income tax on these foreign earnings repatriated would not be owed in 2011 or in 2012, and instead would be deferred.
And these deferred US federal income taxes from foreign earnings repatriation would be due when the Big Corp Tax Loophole Closers are to be paid under the Debt Ceiling Deal. And not just due then, but would also actually replace the US federal income tax owed then from the Tax Loophole Closers.
Let me explain.
Say that a Big Multinational Corp has a Corporate Tax Loophole, such as on LIFO inventory, whose Tax Loophole Closing is used as part of this $1 trillion of funding for the Debt Ceiling Deal. And assume that the amount of this Corporate Tax Loophole to be closed for this Big Corp is $700 mil, and that it is set up to be repaid in Years 4 through 10, at $100 million per year for each of those 7 years.
Thus, under my proposal, the Big Corp would be able to repatriate in 2011 or in 2012, an amount that in total would normally result in $700 mil of US federal income tax owed on foreign earnings repatriated. And to make it even more attractive to the Big Multinational Corp, I would consider even granting a somewhat discounted US federal income tax rate on its foreign earnings repatriated, thereby increasing the amount of foreign earnings it could repatriate in 2011 and 2012 that would result in $700 million of US federal income tax owed on foreign earnings repatriated.
Then, in each of the 7 years from Year 4 to Year 10, $100 million of the deferred US federal income tax from the foreign earnings repatriation in 2011 and 2012 would be used to settle the federal income tax owed from closing the LIFO Inventory Tax Loophole.
It’s a winner for everyone.
The Big Corp gets its hands right away on a substantial amount of its cash and investments sitting in foreign tax havens like Ireland (ouch, is that country now ever a financial risk). And it doesn't have to pay US federal income tax on these foreign earnings repatriated right away....instead, this tax is deferred for up to 10 years. The Big Corp gets no income tax charge on its income statement, because it simply changes its accounting out of LIFO, or if it’s another Tax Loophole Closer related to a temporary tax difference, then the Big Corp would also get no income tax charge on its income statement.
The US Government gets to count this, for CBO scoring purposes, and also economically, as a Corporate Tax Loophole Closing Funding over the next 10 years, and thus use this as a key part of its $1 trillion total tax revenue funding goal.
When I get some time, I'll be laying out in detail some specific tax items, of the many tax items that Big Corps presently take advantage of, that I think in all fairness should be considered as part of the Big Corp Tax Loophole Closing funding vehicle that should be integral parts of this $4 trillion Debt Ceiling Deal. I feel fairly certain that once it is clearly explained to them, that a clear majority of the American public would agree with me that these Big Corp Tax Loopholes that I will be detailing should be closed, and used to wisely help the country get out of its horrible economic mess.