Byzantine Taxing

Many companies, sitting on billions of dollars of tax credits, want to be able to cash them in promptly.

For example:

Duke has been unable to use all the corporate-research and renewable-energy credits it accumulated because it has been using accelerated tax deductions for capital investments to lower its taxable income, said Dwight Jacobs, the company’s chief accounting officer. That bumped it up against tax-code rules that limit tax credits, leaving $1.8 billion in unused credits on Duke’s books. Under the proposal, the company could get that within months instead of years.
The proposal “would give us more cash today and that would cause us to avoid borrowing money that we would otherwise have to borrow,” said Mr Jacobs.


Under the tax code, companies can claim credits for activities encouraged by the government. Among the largest are credits for conducting corporate research, funding low-income housing, and producing renewable energy….
Unlike deductions, which lower taxable income, credits reduce a company’s tax bill directly. But there are limits. Companies can generally offset only 75% of the taxes they owe by using credits. Any leftover credits can be used for one previous year or up to 20 years in the future.

Sound complicated? That’s the point. This isn’t a matter of helping out Duke, et al., with a particular section of the tax code. This is a matter of a too-complicated tax code.

We need, badly, to simplify it. A single, low rate, with no deductions, subsidies, credits, or other froo-froo would be suitably simple.

Better, would be eliminating corporate taxes altogether. In the end, the taxes a business pays are just costs passed on to customers in the form of higher prices; the taxed business doesn’t itself pay very much of its tax liability.

Either move would be doubly beneficial: more money left in the company’s coffers for R&D, marketing, capital improvement, jobs, wage increases from the reduced/eliminated taxes. More money also would be left in the company’s coffers for R&D, marketing,… from the reduced/eliminated tax compliance costs.

And all of that adds up to lowered prices for the company’s customers.

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