Tax Reform has Become an Absolute Necessity

I have discussed in passing in earlier blogs that tax reform was something that I thought was a good idea.  However, the Congressional reaction to Apple's testimony on taxes was dismaying.  I didn't like what some of the more vocal Democrats said about tax avoidance (when everything Apple does is legal)  and I didn't like the more vocal  Republicans who hinted that not paying taxes was patriotic.  That sort of stuff is what the IRS needs to police to be fair to those of us who do pay taxes.

Every publicly listed corporation pays the taxes that they legally owe.  How do I know this?  Because I have worked for public corporations and every one of them had IRS personnel in their offices almost every day of every year reviewing the compilation of the tax returns and the supporting materials for the entries.  Generally accepted public auditors also reviewed the supporting materials.

But that does not mean that many US Corporations are not paying a fair share while they are following the rules of the law.  Right now, the US 35% tax rate is higher than almost every other country.  US companies have every incentive to keep profits they earn overseas in lower tax countries in those countries.  Furthermore, companies have the ability to re-domicile themselves and only pay US taxes on US operations.  I don't find that particularly patriotic, but you cannot argue that Corporations have an obligation to be patriotic, only to generate the highest returns for their shareholders.  I have seen more than one corporation re-domicile themselves to cease US taxation of foreign earnings.  Apple has not done that and that is why the Democratic criticism is off the mark.

The fact that Corporations have no obligation to be patriotic is why they should not have a right to contribute in unlimited fashion to political campaigns.  Citizens United did not address the obligation to be patriotic.  But every citizen of the US has an obligation to be patriotic and paying taxes is one of those obligations.

The government has an obligation to create a framework for taxes that is fair to everyone and provides the revenues that the government needs to meet its obligations.  The US cannot have a tax rate that is higher than other countries without creating an incentive to move income to those countries.  The US must reduce its corporate income tax rate to a level that removes that incentive.  And since many companies do not pay the listed tax rate because of special items in the tax code, those items must be removed or at least limited, so that corporations pay for the government services they consume.

Corporate tax reform is a critical necessity.  And while that is being done, we might as well limit deductions to for individuals to $100,000 or some similar large value to remove incentives that might be created for the well-off to avoid taxes they would otherwise owe.