President Obama”™s proposals to lower the corporate tax rate and eliminate loopholes could affect more than just corporations.
On the positive side, it could make it slightly more attractive for companies to incorporate and minimize their liability, said William Conron, an accountant and partner at Citrin Cooperman in Norwalk.
On the other hand ”” if loopholes are eliminated across all business structures ”” middle-market companies could end up paying more in taxes, without the benefit of a lower overall rate.
It all depends on the company and on what actually passes in Congress, Conron said.
“Corporate America is going to benefit from this but a lot of the middle-market startups aren”™t corporations so it”™s not going to have an immediate effect them,” said Conron. “It”™s a step in the right direction, but without clarity on what deductions could take place, I can”™t say it”™s going to be an absolute win for them.”
Late last month, Obama renewed his campaign to lower the corporate tax rate from 35 percent ”” one of the highest rates in the world ”” to 28 percent, which is just above the global average. For years economists and academics alike have argued a high rate impairs the country”™s ability to attract domestic and foreign investment and distorts economic decision making by U.S. firms.
But just as many corporations are weighed down by a high corporate tax rate, numerous studies show dozens, if not hundreds of large corporations, pay little or no income taxes by taking advantage of tax breaks and loopholes.
A 2011 report on 280 corporations, conducted by Washington, D.C., think tank Citizens for Tax Justice, found that nearly a third surveyed paid no federal income tax, making the effective corporate tax rate closer to 18.5 percent on average.
Among the Connecticut companies examined in the study were GE, which paid no corporate taxes from 2008 to 2010; General Dynamics, which averaged a 27 percent effective rate; United Technologies, which averaged a 10 percent effective rate; and Pitney Bowes, which averaged a 30.4 percent effective rate.
To sell his program and to make it budget neutral, Obama has proposed to eliminate loopholes that allow companies to “unfairly” minimize their liability and that incentivize them to store cash abroad.
Without more detailed information, however, Conron said it is difficult to tell what loopholes may be closed or whether they”™d be closed only for corporations or for everyone.
“If you take it from corporations, you”™ll probably take it away from other entities too,” he said. “Neither (political party) has said what they”™re willing to get rid of or the specifics.”
Conron said he”™s talked to a number of company owners over the last year who have said they no longer want their companies in the United States because of the tax burdens. They”™d rather relocate to China or other emerging markets with lower tax rates, he said.
Conron also stressed he doesn”™t look at tax reductions as loopholes, but as rules.
“We need to lower the tax rate so we can be more completive ”” not losing jobs and having companies move abroad,” he said.
