CEOs willing to give up tax breaks - if the rate is right

America’s top executives are willing to “be very creative and to be very courageous” in giving up corporate tax breaks, if in return the rate that companies have to pay on their income is “low enough to justify it,” says John Engler, president of the Business Roundtable, a group of chief executive officers at the largest US corporations.

The Business Roundtable has launched a two-week lobbying and media blitz on corporate taxes, keyed to the fact that on April 1, Japan will officially lower its corporate tax rate. At that point, the United States will become the country with the highest statutory tax rate among developed countries.

Business Roundtable member companies employ 14 million workers and produce $6 trillion in annual revenues.

In February, President Obama proposed cutting the corporate tax rate from its current 35 percent to 28 percent. The administration also proposed trimming corporate deductions and offered an even lower effective rate to manufacturers.

“The president, by putting the 28 percent rate on the table as part of what they call a framework, made a helpful contribution to this whole debate," Mr. Engler said at a Monitor-hosted breakfast for reporters on Thursday. But, he added, "We don’t think that goes low enough.”

On the Republican side, former Massachusetts Gov. Mitt Romney has proposed a 25 percent corporate tax rate, while former House Speaker Newt Gingrich favors reducing the rate to 12.5 percent. Former Pennsylvania Sen. Rick Santorum has called for cutting the rate in half and exempting manufacturers.

Critics note that few companies actually pay the statutory federal tax rate, relying on aggressive tax planning to bring down their payments. But even looking at effective tax rates, the Business Roundtable argues that US-based companies faced a higher effective tax rate between 2006 and 2009 than did companies based in 53 of 58 other countries.    

As a practical matter, an overhaul of the corporate tax is a complex and controversial matter, and Congress is unlikely to attempt it until after the November elections.

Engler, the former governor of Michigan, argues that as a result of high corporate taxes, “we are getting beat on all over the world” in the competition to land new jobs. Pushing the issue now makes sense, he says, because "we need to keep the profile of the issue up so that it is understood.”

The average corporate tax rate among other countries in the Organization for Economic Cooperation and Development (OECD) was 25.1 percent in 2011.  Even matching that rate would not be a panacea, Engler says. 

“If you suddenly dropped the tax rate to 25 [percent], you are only getting to average. That by itself isn’t a clear winner," he says. "But it is a huge part of a bigger puzzle. And if you never change it, I think you retain a vulnerability which increasingly hurts you over time.”