Taxes

That's according to a Business Roundtable commissioned study by PricewaterhouseCoopers LLC of 2006 through 2009 financial data from the S&P Global Vantage database for the 2,000 largest world companies listed by Forbes. That's quite a gap for U.S. headquartered firms to make up versus their competitors in 58 countries, but it ranks 6th in effective tax rates behind Japan, Morocco, Italy, Indonesia, and Germany.

There are all sorts of problems in calculating comparable tax rates across countries, but the tax economists at PWC, many of whom I have worked with, are very qualified to do so. They aggregated total income tax provision plus change in deferred taxes at all levels of government divided by worldwide net income before taxes, minority interest, and extraordinary items. Companies reporting zero or negative tax rates in any year were excluded in that year, and companies with substantial oil and gas operations were excluded because those operations are usually subject to higher rates in countries where oil and gas is a large share of GDP.

Congress is beginning to realize how expensive it will be to cap the dividends tax rate at 20% for those earning over $250,000 beyond the end of this year.  Yesterday, House Ways and Means Chair Sander Levin (D-MI) told the Bureau of National Affairs that it would be "very expensive" and that there was no provision for exempting it under the Budget Act or for "paying for" it at a cost of $138 b. FY11-FY20.  Congressional taxwriters have spent the last few months struggling to find ways to "pay for" $31 b. of extensions of expired tax provisions and would have a much more difficult time finding $138 b.

Friday, the Internal Revenue Service suspended the present law Section 382 denial of loss deductions in the event of a "takeover" of a financial institution by Treasury via its investment of TARP funds. This will allow Citigroup to keep $38 b. of loss deductions.  A Treasury spokesman said Section 382 was never intended to take away losses when the takeover was by the government. True enough. Section 382 was intended to stop corporate raiders from taking over unprofitable firms just for their tax deductions of in the 1980’s. Nonetheless, this is a back door way for Treasury to capitalize financial institutions. It just goes to show, that when circumstances change dramatically, the law changes with them.  This morning’s Washington Post article lays it all out.

James Pethokoukis is on the case, putting together the pieces of a "yes."  My prediction: regardless of how urgent the need for revenue may be, taxes on the highest earners would have to go up dramatically before a VAT of any size would be passed.  Failing that, the Left's history of the first two decades of the 21st century would be that taxes on the wealthy were lowered and 2001 and 2003 and then raised on the middle class in 201x.  The Left is already smarting from what it perceives (correctly, I might add) as a similar thing that happened in the 1980s, when income tax rates were lowered while payroll taxes were increased.  They won't go in for this again unless a very large income tax increase on the highest earners is part of the bargain.

I thought this was a great segment by Bruce on Fox Business News, following up on his point about why it is a disservice to advancing a conservative agenda to keep tax cuts increases off the table: