Baucus Proposal: Corporate Rate Reductions, No Sequester Relief

Sen. Max Baucus (D-MT) released a series of discussion drafts proposing elements of tax reform this week, including recommendations for international tax reform.

Baucus clearly states that tax reform overall should be revenue positive for deficit reduction, but the proposal for international taxation is revenue neutral in the long-run—leaving open the possibility of revenue positive reform of the individual tax system.

While the draft identifies many weaknesses of the current system—including incentives for companies to invest and create jobs overseas and tax haven loopholes—any resulting increases in revenue from closing these loopholes would be countered by reductions in tax rates for corporations.

Recent polling suggests Americans have very little appetite for reducing tax rates for corporations, which pay an effective rate of approximately 12.6 percent. When polled, Americans favour putting revenues gained from closing corporate loopholes and eliminating tax deductions for the wealthy towards public investments and deficit reduction over lowering tax rates for corporations or the wealthy by a nine-to-one ratio, according to Americans for Tax Fairness.

Implementing revenue neutral corporate tax reform would further increase the chances of continued sequestration, which is likely to be even more painful in 2014. In addition to costing the economy another 800,000 jobs and dampening economic growth by 0.6 percent, a new report by the Center for American Progress states, “The key pillars of American prosperity and security would come apart as sequestration hollows out education, research, infrastructure, public safety, and national defense.”

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