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David Rosenbloom Comments on Corporate Tax in Corporate Tax Rate Report

October 14, 2020, WalletHub

Concerns over the proper role of taxation lie at the very foundation of American history. They haven’t gone away, either. President Donald Trump signed a new overhauled tax plan into effect in December 2017, which went into effect in the 2018 fiscal year. One of the largest changes in the plan was that the federal corporate income tax rate was permanently lowered from 35 percent to 21 percent. Republicans championed the tax plan as beneficial to business and consumers and Democrats claimed it would only increase the wealth of the already wealthy.

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David H. Rosenbloom, James S. Eustice Visiting Professor of Taxation; Director, International Tax Program – New York University

Are the current multiple trade disputes going to send the stock market into depression? What risks these disputes pose for the investors?

[ROSENBLOOM] I have no better answer to this than the man on the street, or the one sleeping under a bridge. Of course, the disputes pose risks, but whether they can crater the stock market (into a depression?) is anyone’s guess. In general, many (not all) of the disputes are self-inflicted wounds that the Administration led the country into on a whim. I suspect with a bit more competence at the steering wheel those disputes can be either resolved or at least tamped down. I don’t see the world falling apart on this score.

Is the U.S. leaving money on the table with the current corporate tax structure?

[ROSENBLOOM] The corporate tax structure can certainly be improved, but I am not sure what to say about “leaving money on the table.” The corporate rate is almost certainly lower than it needs to be and it likewise can be raised somewhat without driving masses of companies out of business. So if the question is whether there is some revenue in the corporate tax space, I think the answer is probably yes, but it is limited.

What would you change about the way U.S. corporations are taxed?

[ROSENBLOOM] A good tax system is efficient, in that it interferes as little as possible with economic activity that would occur in a world without taxes; it is fair or at least appears to be fair so that compliance can be achieved without turning tax administration into a paramilitary operation, and it should be simple so that taxpayers understand what they are called upon to pay and why and tax administrators can easily apply the rules. The problem is that these three goals are to some extent in conflict with one another, so choices are unavoidable. I think the greatest virtue is simplicity, so I would favor a relatively low-rate corporate tax, with relatively few special industry rules and relatively few complex benefit provisions. Needless to add, that would probably require scrapping the current Internal Revenue Code and beginning again with a clean sheet of paper.

Do you consider tax inversion deals to be unpatriotic?

[ROSENBLOOM] I do not consider tax inversion deals to be patriotic and, in fact, I wonder whose patriotism is at issue here. The companies are simply responding to rules that Congress has enacted into law. If anyone’s patriotism is in doubt, it is that of the folks who made the rules, not the companies that followed those rules.

What should the relationship be between corporate and consumer taxes?

[ROSENBLOOM]  If you refer to sales taxes, they are the province of the states. If you refer to individual income taxes, the corporate tax should not be wildly different from the highest level of individual tax (as it is now). I can’t really respond to this question without understanding it. However, I can say that the US needs a value-added tax because I do not believe the income tax can sustain the political pressure that has been placed on it and still raise the revenue that the government needs in order to render the services that the public wants. Once the country grows out of its adolescence, it may come to appreciate that it is necessary to pay for what you want to have.

David Rosenbloom is a Member of the International Tax, Tax Controversy, and Tax Litigation practice groups at Caplin & Drysdale, Chartered.

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