Conventional wisdom is that when Congress finally gets around to tax reform, the first Internal Revenue Code changes will be on the business side.
There are many reasons to take the corporate instead of individual route first.
To begin, it’s a smaller, though valuable, pool of taxpayers. Second, there’s more bipartisan consensus for corporate tax change. Third, big businesses are big political donors, so their tax needs get a lot of attention. And finally, Uncle Sam is losing a lot of potential corporate tax dollars.
So much money is at stake that one U.S. senator is urging the president to use executive action to close some gaping business tax loopholes. Sen. Bernie Sanders, I-Vt., says that if the six current business tax laws he’s identified could be tightened or eliminated, the U.S. Treasury would get $100 billion over the next decade.
A more thorough revision of the corporate tax code, however, could bring in even more.
Big business, no taxes
A recent examination of large and profitable U.S. businesses by USA Today found 11 firms that paid no domestic income tax last year.
The tax-savvy businesses listed by the national newspaper are Goodyear Tire, TE Connectivity, Eaton, Tyco, Masco, Royal Caribbean, Wynn Resorts, Darden Restaurants, Level 3, FirstEnergy and Cabot Oil.
These companies managed zero tax bills in 2014 even though the current corporate tax rate is 35 percent.
All perfectly legal
Let’s be very clear here. Neither I nor USA Today is saying that these companies and their tax advisers did anything wrong.
You and I take every legal tax move we can to lower our Internal Revenue Service bills. Heck, my paycheck depends on keeping track of ways to do just that. And, according to the Supreme Court, corporations are people, too, so we should expect the same tax approach from them.
Some of the companies cited for their nonexistent tax payments last year claimed legal tax credits. Others took advantage of corporate inversion rules that allow them to shift, on paper at least, their corporate headquarters to more tax-favorable foreign locations.
The bottom line is that the tax code allows such maneuvers.
And when tax and financial finagling produces a zero tax bill for lots of big businesses that raked in beaucoup cash, that’s just one more reason why we’re likely to see corporate tax reform sooner rather than later.
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Veteran contributing editor Kay Bell is the author of the book “The Truth About Paying Fewer Taxes” and co-author of the e-book “Future Millionaires’ Guidebook.”