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Thursday, January 13, 2011

Treasury Secretary Geithner and Corporate Tax Reform

More on possible corporate tax reform ...

During and after Secretary Geithner's speech at John Hopkins University on January 12, 2011, which was mostly about our economic relationship with China, the subject of corporate tax reform came up. According to Reuters ("Geithner gauging support for big tax change," Kim Dixon, 1/12/11), he noted that effective tax rates tend to be lower than the statutory tax rate due to use of deductions and credits. But he also acknowledged that the statutory rate can influence business decisions as to where to invest.

Geithner is reported to be meeting with CFOs of some large companies this week about corporate tax reform. Why isn't he also meeting with tax practitioners? (Of course, the CFOs most likely had some extensive discusisons with their tax directors or tax VPs before going for the chat.)

Will we a corporate rate reduction? As I've noted in prior blogs (such as Jan 6), that would bring the current 35% rate down below what the current temporary top rate is for individuals (35%). That raises some issues. Also, just take a look at the 2010 Tax Relief Act (P.L. 111-312) and its list of almost every temporary provision in the law (over 100) many of which are not there to define taxable income, but to provide a special benefit to some group of taxpayers (and every possible group gets something). And it cost around $800 billion dollars to keep these special, complicated rules in place for 2 years. We can't afford to keep them forever unless there are significant spending cuts and reductions in entitlement benefits. So, I think broader tax reform will happen first or simultaneously with any corporate tax reform.

What do you think?

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