Among the various Democratic presidential contenders, there are a number of proposals for corporate tax reform. After reviewing all the candidates’ plans, we’ve identified the ‘Top 5 Democratic Tax Reform Proposals.’
By David Morse, Tax Policy Director
The Coalition for a Prosperous America (CPA) believes corporate tax reform should stop discrimination against domestic companies versus multinational companies, incentivize production and investment in the US and improve US trade performance. The big problem is US and foreign multinationals who profit from selling in the US market while evading taxes by moving profits or production offshore.
Additionally, CPA supports a plan to address the trade suppression impact of foreign value added taxes (VATs) that average 17% globally. We support countering foreign VAT’s with a US goods and services tax (GST) and using the proceeds to offset other domestic taxes such as payroll taxes. Domestic taxpayers pay no new net tax, foreigners pay the new GST, and USA made products are exported GST free.
This ‘Top 5’ list seeks to weigh the best tax plans in terms of improving America’s trade competitiveness. The various tax proposals were rated (A – F) on the following criteria:
- Recognition of the problems identified by CPA above
- Effectiveness of the candidate’s tax proposal in solving these problems
- The particular candidate’s emphasis on these issues
NOTE: Partial or full repeal of the Tax Cut and Jobs Act (TCJA) was not considered. Repeal is not new policy, and, for all its flaws, the 2017 law did reduce some loopholes that benefited multinationals. Additionally, proposals to raise the corporate tax rate were not included since these would not positively affect domestic manufacturers.
Elizabeth Warren’s Real Corporate Profits Tax
Sen. Elizabeth Warren has taken big risks and bold gambles in her presidential campaign. She released a corporate tax reform plan targeting the largest corporations in the US. She would impose an extra 7 percent surcharge on every dollar of corporate profit after the first $100 million. In the real world, this covers roughly 1,200 companies– almost all multinationals. This surcharge tax would not be reduced by any tax loopholes. Sen. Warren is one of the first candidates in 2018 to recognize the harm that multinational tax avoidance poses to domestic companies. This solution is a clear part of her campaign platform and she has discussed it frequently. However, her plan has an intrinsic flaw. Only American corporations would be targeted by this tax. Foreign corporations of larger sizes would likely keep their tax advantages.
- Solution Grade: C-
- Problem Recognition: A+
- Solution Promotion: A+
OVERALL GRADE: B+
Bernie Sanders’ Corporate Tax Dodging Prevention Act
Senator Bernie Sanders is promoting a “Corporate Tax Dodging Prevention Act” as a means to end corporate tax avoidance. The largest aspect of his proposal is moving all American corporate profits from foreign sources immediately, and treating it as if it were domestic income. His legislation also creates a higher bar for identifying a corporation as “foreign.” His legislation has a flaw, since it allows foreign corporations retain the advantages of domestic companies. While Sanders has recognized the plight of domestic companies in the past, and recognizes that multinationals pay far less in taxes, he has yet to make such a statement in the current campaign.
- Solution Grade: C
- Problem Recognition: B+
- Solution Promotion: A+
OVERALL GRADE: B+
Pete Buttigieg’s Apportionment (Sales implied) Tax System
Mayor Pete Buttigieg expressed his perspective on multinational corporate tax avoidance on the Daily Show segment “Between The Scenes.” To combat base erosion, Buttigieg expressed support for the apportionment system currently in use by many states. He further implied that this would be something along the lines of “Sales-Factor Apportionment.” That system would tax the profits of all corporations based on the share of their worldwide sales that are destined for customers in the United States.
Despite Mayor Pete Buttigieg’s solution being nearly perfect, he has not been clear about his version of such tax apportionment. He also has yet to recognize the harm that tax avoidance by multinationals imposes on small domestic companies. He has also only talked about his solution when specifically asked and has not made it a part of his speeches or his platform.
- Solution Grade: A
- Problem Recognition: B
- Solution Promotion: C
OVERALL GRADE: B
Andrew Yang’s Value-Added Tax
Andrew Yang has proposed a 10% value-added tax to help pay for some of his big policy proposals. Value-added taxes are currently imposed by many countries, and assessed at every stage of production. They provide a de facto subsidy for foreign manufacturers, and a tariff on US exports. Yang has proposed a US Value Added Tax, though at only a 10% rate. For trade purposes, it would be more beneficial if his VAT was closer to the global average of 17%. However, Andrew Yang has not embraced the trade-competitive needed for adopting a US VAT, and he’s more concerned with keeping his tax rate lower than the rest of VAT countries. However, Yang has made this tax proposal a top campaign priority and has spoken extensively on the subject.
- Solution Grade: B
- Problem Recognition: F
- Solution Promotion: A+
OVERALL GRADE: C+
John Hickenlooper’s Mom and Pop Tax Credit
Governor John Hickenlooper is proposing tax reform dedicated to microbusinesses or “Mom and Pop” shops. He touts tax credits for microbusinesses– which are defined as having five or less full-time employees and annual revenues of less than $10 million. Microbusinesses would be allowed up to $50,000 in lifetime credits for new business investments and additional hiring. This plan would help new businesses and would only apply to domestic companies. However, Hickenlooper does not consider wider trade problems, and his solution is very limited. The only highlight is the emphasis on his solution as part of his platform. But better options exist.
- Solution Grade: D
- Problem Recognition: D-
- Solution Promotion: A
OVERALL GRADE: C-
Read more on competitive tax policies here.
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