Dems’ Tax Plan: No Substance, Just Lip Service
Policy + Politics

Dems’ Tax Plan: No Substance, Just Lip Service

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A group of moderate Democrats released a white paper Thursday endorsing lower corporate tax rates, elimination of tax breaks for U.S. companies, and incentives  to encourage multinational companies to move manufacturing jobs back into the United States. 

“By lowering corporate rates to a competitive level internationally, we can also reduce or remove tax benefits that add further complexity and encourage multinational companies to keep their money abroad or defer paying U.S. taxes,” the paper said.

But in another reminder of how deeply divided Congress remains on  tax reform, the document drafted by the 42-member New Democratic Coalition was light on critical specifics.

For example, the white paper does not specify the size of the corporate tax rate cut, single out tax breaks to purge, mention whether the Democrats favor a one-time repatriation holiday, or specify whether a tax reform deal should raise revenue — all crucial decision points for enacting comprehensive tax overhaul.

Rep. Ron Kind, D-Wis., one of the report’s authors, said the group had little choice but to hedge on definitive policy prescriptions while they seek to forge a consensus with other lawmakers. “Sure, you can identify the goal of getting to a 25 percent rate and going to a territorial system, but the hard part is trying to find the appropriate pay-fors so we don’t blow a hole in the budget.  That’s where our real work is going to have to be,” Kind told The Fiscal Times.  “We will be involved in the weeds when it comes to working out details. For now, this is a fair and balanced stepping stone.”

But details aside, tax experts on both ends of the political spectrum say the proposals don’t add up.

“They say they want to simplify the tax code, yet they spend the rest of the paper explaining how they want to add new loopholes. They say they want more tax breaks for businesses to invest outside of the United States. They want no tax increases on anybody, and they have no way to pay for any of this,” said Bob McIntyre, executive director of Citizens for Tax Justice, a liberal advocacy group.  “It’s a document at war with itself.”

Curtis Dubay, a senior fellow at the conservative Heritage Foundation, agreed.  “There’s nothing to build off of here to craft policy because it’s completely ambiguous,” he said.  “They talk about lowering the corporate rate, promoting international competitiveness, and reducing tax benefits that encourage multinational companies to keep their money abroad and defer taxes. I have no idea if that means they are in favor of a territorial system, or if they want to keep a worldwide system and get rid of deferral.”

According to some analysts, the Democratic document highlights the lack of agreement on the proper way to overhaul the dense tax code. “The way this is written, it masks some divisions within their own group over contentious issues like a repatriation holiday or whether we should raise more revenue from the corporate tax or personal income tax,” said  Michael Linden, associate director for tax and budget policy at the left-leaning Center for American Progress.  Corporate tax lobbyist Ken Kies concurred.  “The minute you start to get specific, the harder it gets to cull a large group of moderate Democrats or anyone else together,” he said. 

Large corporations, congressional Republicans, and a few Democrats including Sens. Chuck Schumer of New York and  Kay Hagan of North Carolina,  are pressing to enact a so-called repatriation initiative, which would tax companies’ earnings being held abroad at a far lower rate than the 35 percent the U.S. normally levies.  A 2005 repatriation program cut the top U.S. corporate tax rate for companies repatriating foreign profits from 35 percent to 5.25 percent.

Although companies brought $362 billion worth of profits back to the U.S., according to IRS estimates, the money failed to stoke U.S. investment and employment or stimulate demand, a 2010 Congressional Research Service report found. Earnings were instead routed back to shareholders through stock repurchases and dividend payments and had little effect on job creation.