Misplaced Priorities: The Flawed House and Senate Corporate Tax Bills

Publication Date: July 2004

Publisher: Center on Budget and Policy Priorities (Washington, D.C.)

Author(s): David Kamin; Joel Friedman

Research Area: Banking and finance; Business

Keywords: Corporate taxes; State budgets; Economic projections; Fiscal future

Type: Report

Abstract:

On June 17, the House passed a corporate tax package that would repeal an export subsidy which the World Trade Organization has ruled to be illegal. In May, the Senate approved its own version of the legislation. Both the House and Senate versions include an extensive array of tax cuts and revenue-raising provisions.

Despite some positive features, these bills are flawed. The most serious problem is they miss an opportunity to use the savings from repealing the export subsidy and closing tax shelters to make progress on pressing national priorities, such as reducing yawning deficits that pose a long-term risk to the economy. All of the savings from these measures would instead be plowed into financing new tax breaks, most of which benefit corporations at a time when corporate tax revenues are already at historically low levels.

Indeed, these bills are likely to increase long-term deficits. The Senate bill is estimated to be deficit neutral, while the House measure explicitly increases the deficit by $35 billion through 2014. But numerous tax cuts are written into these bills on a temporary basis, and most are likely to be extended. If these tax cuts ultimately are extended without being paid for, the result will be significant increases in deficits over time.

Moreover, the bills include numerous provisions — from relief for tobacco farmers in the House bill to energy-related tax breaks in the Senate bill — that are unrelated to the WTO dispute, and that have apparently been added primarily to garner more votes for the bills. Even some staunch conservatives who traditionally support extensive tax cuts have sharply criticized these tax bills.