The Senate Finance Committee asked a series of corporate executives about whether they could accept the loss of some corporate tax breaks in exchange for lower tax rates. For the most part, they said yes.
Among them was Wal-Mart president and CEO Mike Duke. “If the result is comprehensive reform, we support getting rid of existing incentives that currently benefit some industries over others,” he said at Wednesday’s hearing. “In fact, we will give up the existing incentives that benefit us, if it means getting rid of them all in a simplified, more competitive, and territorial system. Taking these steps to reform America’s Tax Code will help American companies compete abroad.”
Duke noted that foreign competitors have an advantage by paying less in corporate income taxes than Wal-Mart. “Corporate tax rates have been steadily falling internationally, but the U.S. is out of step,” he said. “The average rate in developed countries is 25.1 percent, compared with 39.2 percent in the U.S. We need a rate that is meaningfully lower in order to spark investment and job creation.”
Kimberly Clark chairman and CEO Thomas J. Falk agreed that the Tax Code puts U.S. multinationals at a disadvantage. “The U.S. system of corporate taxation puts American companies and the American economy at a disadvantage when competing in the global marketplace,” he said in prepared testimony. “The combination of a high statutory tax rate, taxation of worldwide earnings, and the complexity of our tax rules creates an uncompetitive tax environment for U.S.-based companies and discourages investment in the U.S. economy.”
He added that the complexity of the U.S. international tax system puts U.S.-based multinationals at a disadvantage against global competitors.
“The current complexity of the U.S. Tax Code requires U.S. companies to devote significant resources to ensure compliance,” said Falk. “The time and money spent on those activities takes away resources that could be spent on product innovation, job creation, and market-growing activities. American businesses need a tax system that reduces the cost of administration, is stable and predictable, reduces the risk of error, and is easier to monitor.”
Senate Finance Committee Chairman Max Baucus, D-Mont., told the business leaders during the hearing that they need to preserve good-paying jobs and create more jobs in the U.S., but he agreed that the Tax Code needed improvement.
“We need to work to improve the Tax Code to help U.S. businesses create good-paying jobs here at home and better compete in the global economy,” said Baucus. “Americans deserve a Tax Code that helps get them back to work and spurs widespread prosperity and growth.”
Sen. Orrin Hatch, R-Utah, the ranking Republican member on the committee, acknowledged that the Tax Code needs an overhaul. The hearing was one of a series that the Senate Finance Committee has been convening over the past year to examine various aspects of business and individual tax reform.
“The corporate tax is generally considered to be the most inefficient of all taxes,” Hatch said in his opening statement. “And tax scholars have debated for years as to who bears the burden of the corporate tax. We know that although corporations cut the checks to the IRS, corporations don’t ultimately pay taxes—people do.”
CVS Caremark president and CEO Larry Merlo said his company supported tax reform. “Tax reform is important to CVS Caremark because we anticipate that it will serve to lower our cost of capital and enable the company to make additional investments in our core business,” he said. “We support broad reform that enhances the competitiveness of U.S. companies around the world and encourages the free flow of capital. For CVS Caremark, however, the key component of any tax reform initiative is a reduction in the maximum corporate income tax rate.”
He noted that the drug store company’s federal effective income tax rate is approximately 35 percent and its combined federal and state effective income tax rate is approximately 39 percent. With its over 200,000 employees, the company generates federal payroll and corporate income tax revenues of approximately $3.7 billion annually. When state and local payroll and income taxes are added, CVS Caremark’s annual tax payments total more than $4.3 billion.
PMC-Sierra president and CEO Gregory S. Lang talked about how tax reform could make a big impact on the technology industry, including his semiconductor company. “I believe that corporate tax reform can be one of the most effective tools that the U.S. Congress can use to get America growing again and to maintain our leadership in technology,” he said. “A more competitive tax structure will allow U.S. enterprise to build and invest more of their resources in the United States. A restructured Tax Code means that companies will have more capital to invest in their products, which will create a need for more long-term jobs, and provide for sustainable long-term growth for the U.S. economy. Most importantly, a competitive tax system will eliminate the disincentives to building manufacturing and R&D facilities here in the United States and creating the jobs those facilities will provide.”
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