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Corporate tax cutting makes return to U.S. political agenda

U.S. President Barack Obama delivers remarks on the budget alongside acting Director of Office Management and Budget Jeff Zients in the Rose Garden of the White Hose in Washington.


The Hub LLC is an ambitious little company that aspires to grow into something like the Avis Budget Group of the meeting-and-conference-space business.

Its location at the Cira Centre, a 29-storey glass tower attached to Philadelphia's 30th Street train station, makes it an ideal place for business travellers to access a reliable Internet connection or for thrifty companies that are seeking to save on rent by shrinking their office space.

Last week, Bill Decker and John New, two former Georgetown University classmates who started the company nine years ago, hosted a different sort of client. Sen. Max Baucus and Rep. Dave Camp, the lead tax writers in the U.S. Senate and the House of Representatives respectively, chose The Hub as a backdrop for their campaign to overhaul the tax code, an effort that is being described by some as quixotic and by others as inspired.

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Mr. Baucus told his hosts that he and Mr. Camp were keen to meet "real people" – though the horde of media and others trailing the two Washington legislators outnumbered the "real people" by about six to one.

The politicians and the businessmen sat at the end of a long table. The rest of the places were taken by about half a dozen reporters and a woman from the local office of AARP, the national seniors lobby. An equal number of aides, reporters and representatives from the U.S. Chamber of Commerce were spread around the room. A radio journalist placed herself at the head of the table, swivelling back and forth to capture the dialogue between Mr. Baucus and Mr. Decker, the main interlocutors.

On its own, the event approached farce. But that assessment misses a larger point. The willingness of Mr. Baucus, a powerful Democrat, and Mr. Camp, a powerful Republican, to make such a public show of their desire to work together is creating a buzz in the U.S. capital. Tax policy suddenly is moving to the top of the American political agenda.

U.S. President Barack Obama attempted to catch the tax-policy wave, saying last week he favoured cutting corporate taxes if changes could be paired with a one-time investment in infrastructure.

"When the chairmen of the [House] ways and means committee and the [Senate] finance committee decide they want to do something jointly, and they are from different parties, one has to take them seriously," said Bill Frenzel, a former Republican congressman from Minnesota who now is a scholar at the Brookings Institution in Washington.

Mr. Camp says their goal can be summed up in a word: simplify. High among their priorities is to cut the corporate rate from the current 39 per cent, the highest in the developed world. They would pay for it by ending dozens of special-interest tax breaks, or "barnacles on the document," as Mr. Baucus describes them.

In theory, there is broad support for what Mr. Camp and Mr. Baucus are trying to do. The tax code last was reworked in 1986 and has become highly convoluted. But there's a reason for that: Everyone favours a simpler tax code until their specific benefits or tax breaks are put on the chopping block.

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Take the Chamber of Commerce, the country's main business lobby. It's a big advocate for lower rates and less paperwork, yet it shies from getting into specifics, at least in public. The reason: its diverse membership is divided on what tax breaks should be sacrificed.

Tax reform has been in the air for most of Mr. Obama's presidency, yet little has been done. There's reason to believe that inaction is hurting the recovery.

All the talk creates both anticipation and trepidation. There is considerable support for a lower corporate rate and reducing American business's dependence on accountants. But the likelihood that change is coming reduces the incentive to invest now. According to data collected by the Federal Reserve, non-financial companies are sitting on some $1.5-trillion (U.S.) in cash. The Fed, citing anecdotal evidence, says that unusually large hoard probably is at least partially the result of uncertainty about future tax policy.

Mr. Decker made an impassioned statement about how the tax system is choking America's vaunted entrepreneurial spirit, explaining that the code's complexity favours bigger competitors in the conference business such as Marriott International Inc. that can afford teams of accountants.

Mr. New described the reams of information demanded by the Internal Revenue Service as out of touch with the reality of operating a business. "After the second or third page, the tax return enters la-la land," he said.

Mr. Baucus and Mr. Camp have been working on a tax package for months, but still refuse to discuss details. Both promise legislative proposals in the fall.

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The seriousness with which Washington is taking that prospect can be measured by the number of trade associations that have popped up to engage on the issue, sporting names such as the RATE Coalition and the Alliance for Competitive Taxation.

Elaine Kamarck, a co-chair of RATE, said she fully believes Mr. Baucus and Mr. Camp will table legislation this year. Mr. Frenzel, who served on the ways and means committee when the tax code was overhauled in the 1980s, said he remained skeptical of success, citing the still intense animosity between the two parties. Republicans immediately attacked Mr. Obama's proposal on Wednesday. (Politics could become an obstacle in other ways, too: Mr. Camp is considering a run for the Senate in 2014, a move that would increase his campaigning burden next year, when any tax-reform package would likely come up for debate.)

Back in Philadelphia, the owners of The Hub said they were optimistic. "It feels like there is a seriousness about it," Mr. Decker said in an interview, after the circus had left town.

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About the Author
Senior fellow at the Centre for International Governance Innovation

Kevin Carmichael is a senior fellow at the Centre for International Governance Innovation, based in Mumbai.Previously, he was Report on Business's correspondent in Washington. He has covered finance and economics for a decade, mostly as a reporter with Bloomberg News in Ottawa and Washington. A native of New Brunswick's Upper St. More


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