Still Waiting For Tax Reform

Weekly WastebasketStill Waiting For Tax ReformIt’s not about paying zero or billions in taxes, it’s about writing a better tax code.

Budget & Tax,  | Weekly Wastebasket
Nov 22, 2019  | 6 min read | Print Article

Last Sunday’s New York Times had a front page story on FedEx federal income taxes – or lack thereof. The article documented that in 2018, FedEx paid $0 in federal income tax after the 2017 tax cut took effect. FedEx CEO Fred Smith replied the same day that the story was “distorted and factually incorrect” without offering corrections, but challenging the Times publisher to a duel, err, debate.

FedEx later rolled out their tax facts document, which seems to have taken a page from the American Petroleum Institute’s playbook, conveniently talking about federal, state, excise, property, payroll, sales, and use taxes from the past to inflate the total tax number when the article was solely about federal taxes in 2018.

FedEx also points out – correctly – that some of its tax relief is from capital investment, which the law allowed to be immediately written off (expensed). But the Times also pointed out that instead of increasing capital investment – which many including FedEx’s Fred Smith argued would be a result of the tax law – the company’s investment actually declined and the bulk of their tax cut windfall went to stock buybacks, dividend increases, and pension payments. That certainly benefits owners of FedEx stock and employees, but is a far cry from new and expanded factories, warehouses, or machinery, which is the type of heavy, long-term capital investment the law’s proponents promised.

FedEx indicated they pay all the taxes they owe. That’s good, unlike many others, they’re not a tax cheat. Again the article didn’t indicate they evaded taxes illegally. They followed the law and that is the problem. The 2017 tax cut was bad tax policy that has contributed to the staggering budget deficit our nation is facing in times of economic growth. That is virtually unprecedented.

Let’s be crystal clear – we were an early and vocal champion of tax reform. On September 22, 2016 we hosted a panel of some of the leaders of the 1986 tax reform, the last major overhaul of the code. We wrote op-eds, we met with many elected representatives, including leaders on the tax writing committees. But we wanted it done like it was in 1986 – deficit neutral. That’s what was promised at the outset of the 2017 Tax Cut and Jobs Act debate. Eliminate the outdated and often redundant breaks that litter the code to generate the revenue to cut the corporate rate, maybe even create a carbon tax to increase revenue and drive rates down even further. Whatever you do, the emphasis is on reform, and keeping it deficit neutral. Instead the country got a deficit financed tax cut.

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And even that costly tax cut isn’t permanent – at least not for you. Every single tax benefit on the individual side of the ledger expires in 2025. Why? To artificially make the budget score appear to be less expensive. The thought is that when personal cuts expire it will be politically impossible not to extend them if not make them permanent. It was what happened in 2011 when the President Bush era tax cuts from 2001 and 2003 were set to expire.

At the same time policymakers are cutting revenue, they are increasing spending. The last two bipartisan budget deals to raise budget caps added a staggering $617 billion to the debt over four years. Remember, these caps did not cut spending every year, they simply limited how much spending could increase year-to-year. The caps allowed $4.4 trillion of spending over that span, but that wasn’t enough for lawmakers’ voracious spending habits so they boosted spending by 14 percent.

The nation’s tax system is too important to not get it right. It’s not just about raising revenue adequate to fund the government the people and their elected officials want. It’s about fairness and faith in a system where everyone from big companies to lifeguards is paying their fair share. The Treasury relies on voluntary compliance, and if people start feeling like suckers the nation will end up with a farce of a tax compliance like in some other countries. So it isn’t about FedEx paying zero dollars in federal income taxes or paying billions of dollars – it’s about writing a better tax code.

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