WASHINGTON – Despite optimistic talk from Democrats and Republicans about overhauling the tax code, General Electric Co. recently showed that corporate executives aren’t holding their breath for a bipartisan deal.
GE said April 10 that as part of a major restructuring, it would bring back $36 billion in overseas cash and pay $6 billion in taxes to do it – even though changes long under discussion in Washington could have significantly reduced that tax bill.
“It’s a clear indication that corporate America isn’t waiting for D.C. to make the tax code any simpler,” said Chris Krueger, a policy analyst at financial services firm Guggenheim Partners in Washington.
There’s broad agreement the U.S. corporate tax rate, which at 35 percent is the highest among industrialized nations, needs to be lowered to make American companies more competitive with foreign firms and that loopholes need to be eliminated to make the code simpler and more fair. Yet for multinational companies, loopholes and the ability to stash profits overseas help lower their overall tax rate to well below 35 percent. A study by the Government Accountability Office found that the average effective tax rate for profitable U.S. corporations was 16.6 percent in 2010.
Given that President Barack Obama and congressional Republican leaders want to show that they could work together in the aftermath of last fall’s elections, both sides have made a tax overhaul a top priority.
The desire to find a way to lower the corporate tax rate also was fueled by a rash of so-called inversion maneuvers last year by U.S. companies to reincorporate abroad to lower their tax bills.
But the devil is in the details, and major differences remain in how to reform the code, particularly whether individual tax rates should be revised along with those paid by corporations.
There isn’t much time left to gain momentum.
With elections in 2016, it’s unlikely Congress could pass something as controversial as tax reform next year. And obstacles are mounting to getting anything passed this year.
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