Obama wants to cut corporate tax rate, G.E. might lose its advantage

The corporate tax rate has been under scrutiny since the New York Times wrote back in 2011 that G.E. paid no taxes. G.E. now holds the title of America’s best tax dodger, so the company has started a new ad campaign to cover up its skillful playing of the tax system. However, the cat is already out of the bag, and the people want change.

Some politicians call for a higher corporate tax rate, some call for lower, and some call for closing loopholes. Of the three, raising the corporate tax rate would benefit G.E., and companies like it, the most while closing loopholes would do them the most harm. A real solution to the current corporate tax problem would be to close loop holes while lowering the corporate tax rate. Basically, it would send a similar message as President Obama’s new corporate tax plan, but would go further and offer a strategy to accomplish it.

G.E. faces many different competitors in many different industries which makes finding an advantage that would make G.E. more competitive across all of them difficult. One such advantage can be provided through corporate taxes. G.E. has mastered the combined use of tax code loopholes and hordes of lobbyists to game the corporate tax system. As a result, the company has paid an income tax rate that averaged 2.3% over the past 10 years. If the corporate tax rate increases, it is unlikely that G.E. will give up its campaign to avoid taxation. It is much more likely that it will redouble its efforts, and judging by its past success, I doubt G.E. will end up paying what President Obama refers to as its "fair share."

Can the same be said for G.E.’s competitors? Probably not. The vast majority of them will end up paying the higher tax rate while watching their competitor remain unscathed once again. This would be G.E.’s dream weapon, a tax rate that weakens its competitors across all industries.

How do great American companies become such monstrosities? How did the corporate tax rate become so ineffective? It’s all about incentives. As the U.S. corporate tax rate grew to one of the highest in the world, companies like G.E. had a eureka moment. If they invested millions of dollars into lobbyist firms and research that granted tax write offs, they could save billions by not having to pay taxes. As time progressed, their lobbyist influence the creation of never-ending loopholes and the government became addicted to providing them with green energy tax write offs, and today’s situation was created.

Obama’s new corporate tax plan may be lacking in the “plan” department, but it has the right message. His plan calls for the closing of loopholes and a lower corporate tax rate of 28%. This is exactly what needs to happen. As the corporate tax rate decreases so does the incentive for companies to invest in lobbyists. Why would they spend millions on lobbying for tax breaks if their taxes were in the thousands? Closing loopholes prevents companies like G.E. who have become masters of avoiding taxes from having an advantage over smaller companies who do not have the resources to waste on navigating the web of loopholes. The end result would be companies like G.E. paying more in taxes, but less than they previously had spent on lobbyists, a tax break for smaller companies who were not as effective at avoiding taxation previously, and an overall increase in revenue from the corporate tax.