Corporate tax reform could leave these companies paying more

Some U.S. business leaders urging Washington to lower corporate tax rates may want to be careful what they wish for.

Despite widespread calls for slashing the top rate from the current 35 percent, dozens of major companies are already paying less — in some cases, far less — than that share of their profits in taxes.

So if the push for tax reform ends up slashing through the thicket of business deductions, exemptions and loopholes, companies that currently take full advantage of those tax breaks would end up paying more to the Treasury, not less.

"All of the things packed into the tax code would have to be unpacked," said economist Diane Swonk.

Treasury Secretary Steve Mnuchin told CNBC on Thursday that the White House has a "detailed plan" for overhauling the nation's tax code — but stopped short of spelling out those details, including the administration's goal of lowering the top rate.

President Donald Trump campaigned on a promise to lower the rate to 15 percent, but congressional Republicans have indicated that 20 to 25 percent is a more realistic goal.

That's not much lower than the current "effective" corporate tax rate — the share of profits companies actually pay — of about 27 percent, according to the Congressional Research Service, which is in line with other developed countries.

But some companies that enjoy the most generous loopholes can end up paying no tax at all.

A review of the effective tax rates — the amount companies actually pay after taking advantage of tax breaks — shows that dozens of them would pay more in taxes if their favorite tax breaks were eliminated to pay for revenues lost by cutting the top rate.

Earlier this year, the Institute on Taxation and Economic Policy, a nonpartisan think tank, combed through the financial filings of 258 major U.S. corporations to see how much tax they reported paying.

The result: more than two-thirds of the companies paid less than 20 percent of their profits in taxes, on average, between 2008 and 2015. Some actually got money back from the government.

Budget hawks on Capitol Hill aren't likely to go along with deep corporate tax cuts that aren't paid for by eliminating tax breaks. But companies and industries that have lobbied hard for corporate tax breaks over the years now work just as hard to defend the specific provisions that lower their tax bills.

That's why multiple efforts to tame the tax code by previous presidents have failed.

It remains to be seen whether the Trump administration will fare better on Capitol Hill than its predecessors. No matter how detailed the latest White House plan, it has to win the approval of multiple congressional constituencies.

"They jealously guard their turf," said Austan Goolsbee, a senior economic advisor in the Obama administration. "And if the (Trump) administration says 'We want you to get rid of the following deductions and loopholes,' I think there's going to be serious blowback."

And that blowback will be especially strong from companies and industries that would face a higher tax bill.

— By CNBC's John Schoen.

WATCH Dem. Rep. says GOP tax plan about corporate tax cuts


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