Taxes: 25% could make America grate again

LET’S say Congress suddenly gets its act together and passes a tax reform plan that lowers the corporate tax rate to 25 percent.

I know, I’m talking fantasy here — but humor me. I have to fill a column. What would happen? Would companies pay less in tax? No, not necessarily. Would the economy get a huge boost? Again, that’s not necessarily true. Will America be great again? Well, it’s always been great but, no, a tax plan with a 25 percent rate isn’t going to do that either.

Why won’t any of these things happen? Because — surprise! — companies already pay a lot less than 25 percent in taxes. And that fact comes directly from the Government Accountability Office (GAO), the US government’s own bean counter.

So, under possibility No. 1, Congress decides on a tax rate of 25 percent and does away with all corporate deductions and write-offs — resulting in companies getting a huge tax increase.

Under possibility No. 2, Congress goes with a 25 percent rate and keeps all the current deductions and writeoffs — resulting in a lot more companies being able to pay well below the rate set by Congress. Many more could pay nothing. Under possibility No. 1, if companies have to pay more in taxes, the economy is likely to slow down, not speed up, because corporate executives will have less to spend on capital improvements, expansion and hiring.

America will “grate” again, as that 25 percent tax rate will get on the nerves of every job creator in the US.

We don’t know many of the details of the tax reform yet. We do know that every special interest group that thinks it is special is now descending on Congress and trying to have its say about what should be in the bill and what shouldn’t.

But you can be sure of this: Those corporate tax deductions and writeoffs — especially the so-called “tax loss carry forwards” favored by private equity firms and real estate companies are sacred cows that lobbyists will defend to their death.

The sort of massive tax reform that Washington is attempting is the Mount Everest of all legislation, and our elected officials are trying to scale it in flip-flops.

Flip-flops, of course, are the perfect image because politicians who are working on these reforms can’t seem to decide on whom they can afford to alienate and whom — mostly from a campaign contribution point of view — they can’t.

For a lot of reasons, I think tax reform is DOA .

Now, let me get back to the GAO report that I dug up a couple of days ago.

Writing in March 2016 — before Donald Trump became president — the GAO said, “In each year from 2006 to 2012, at least two-thirds of all active corporations had no federal tax liability.”

Got it? They didn’t pay any tax. Two-thirds of all companies.

“Large corporations were more likely to owe tax. Among large corporations (generally those with a least $10 million in assets) less than half — 42.3 percent — paid no federal income tax in 2012.”

How are those two-thirds of all corporations going to like paying 25 percent? Thrilled, no doubt, if Congress opts for possibility No. 1 and they go from 0 percent to 25 percent.

“Reasons why even profitable corporations may have paid no federal tax in a given year include the use of tax deductions for losses carried forward from prior years and tax incen- tives” (such as writing off depreciating assets), the report said.

Here’s the real kick in the pants for anyone who thinks the tax system is unfair. “For tax years 2008 to 2012, profitable large US corporations paid, on average, federal income taxes amounting to about 14 percent of pretax net income that they reported in their financial statements.” Fourteen percent! And Congress is offering up a bargain tax “cut” of 25 percent? How’s that going to work out?

The GAO said it conducted the study because there was so much chatter about tax reform: “GAO’s 2013 report on corporate effective tax rates (ETR) found that in tax year 2010, whether for all corporate filers or only profitable ones, the average effective tax rate was significantly below the statutory rate.”

The GAO didn’t list any companies with tax rates below the 35 percent rate that’s on the books. But a quick internet search shows that IBM paid just 10 percent in tax in one recent year and Apple — which is famous for hiding profits in places like Ireland — paid just 12.5 percent.

GE’s stock has recently been in a free fall because of bad profits. But those profits wouldn’t be nearly as good as they are if GE’s accountants hadn’t blessed the company with just a 2.3 percent tax rate.

Microsoft is a good taxpaying citizen. Its rate was 34.2 percent, close to what it would pay without any accounting razzmatazz.

So, corporate tax reform as it’s being pitched is basically a fraud. A farce. A joke — ha, ha — that has to be causing hilarity in boardrooms everywhere.

It’s something that elected officials might be able to put on their résumés but a reform whose unintended consequences could be yuuuge. There’s a new student loan report out that says that more than 60 percent of graduates want their employers to repay their debt for them. The only surprise here is that the number isn’t 100 percent. And 60 percent expect their student loans to be forgiven. (Again, surprising that it’s not 100 percent given the fairy tales kids are told.) Plus, nearly 40 percent expect their parents to help them pay the debt. (And that’ll be true if the parents die soon enough and leave an inheritance.)