Tax Loopholes Must Be Closed
As the country continues to debate our fiscal future, one particular area that is ripe for reform is the tax code.
Like many people, I was stunned to read recently in The New York Times that a huge, multinational corporation — General Electric — not only paid no taxes to the U.S. Treasury in 2010, but in fact claimed a tax benefit of $3.2 billion.
This was on worldwide profits of $14.2 billion, with $5.1 billion coming from its American operations.
GE achieved this remarkable feat by using a series of loopholes, shelters, tax credits and subsidies. Our tax laws are riddled with these provisions.
Corrective Measures
Conservatives often note — correctly — that the top American corporate tax rate of 35 percent is among the highest in the world. But the maze of existing tax gimmicks means that the effective tax rate — the actual amount paid — for some large businesses is far less. And like many other corporations, GE employs a small army of accountants and lobbyists to work the system in its favor.
I don’t mean to pick on GE. They’re not doing anything illegal or even unethical. They are simply exploiting the existing system for their benefit and the benefit of their shareholders. It’s the system itself that is broken. Worse, it’s unfair.
I talk to a lot of small business owners in Central and Southeastern Massachusetts — indeed, I’m the son of two small business owners. These entrepreneurs will be the engines of our continuing economic recovery. They deserve a tax policy that allows them to compete and grow.
And I have yet to meet a single one who’s getting the same kind of deal from the taxpayers that the big multinational corporations are getting.
I agree with many of my Republican friends that we should lower the top corporate rate. But we should accompany that action with clearing out some of the most egregious loopholes in the code.
At the same time, we should address the inequity in the individual tax code, which encourages Wall Street investing over Main Street production. Since the Reagan Administration — when Wall Street did just fine — the capital gains rate has fallen from 28 percent to 15 percent. Hedge fund managers also enjoy this 15-percent rate.
Fixing this would encourage more capital to flow into new businesses in areas like advanced manufacturing, biotechnology and green energy — sectors in which Massachusetts is primed to lead.
The bipartisan fiscal commission chaired by Alan Simpson and Erskine Bowles urged us to reform the tax code. Members of Congress — Republicans and Democrats alike — have begun some of the most serious discussions on the issue in years.
We cannot and should not reduce the deficit solely by slashing spending on vital programs like Medicare, Pell Grants and food. The sacrifice must be shared by all of us, and revenue must be part of the equation.
Reforming the tax code in a bi-partisan way would be a good place to start.
James McGovern is the Democratic representative for the Massachusetts 3rd District to the U.S. House of Representatives. He is a resident of Worcester.
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