Tax Reform Unpacked at Georgetown Law

WASHINGTON (CN) - Unpacking details of America’s first major tax overhaul in more than 30 years, a panel of seven law professors at Georgetown University on Friday echoed some of the same divergent views heard on Capitol Hill.

Itai Grinberg, a former Treasury Department official who teaches now at Georgetown, told the audience of a few dozen students this morning that corporate tax reform should be embraced, saying domestic multinational corporations are at a disadvantage now when it comes to income earned in the U.S.

"That creates incentives for foreign takeovers, for inversions, for U.S. companies to produce abroad for the U.S. market, and for both U.S. and foreign companies to basically shift income from the United States abroad," Grinberg said.

He added that employment here suffers as a result. "Despite being the world's largest economy, the United States has failed to protect its interest in being a major headquarters jurisdiction and a good place from which to run a global business," Grinberg said.

A day before this morning’s discussion at Georgetown, the House passed its tax bill 227-205, along largely partisan lines. As with the Senate bill, which passed out of the tax-writing committee 14-12 on Wednesday, the House proposal would slash the corporate tax rate to 20 percent.

As the latter proposal heads to the full Senate, an evaluation by the nonpartisan Joint Committee on Taxation found low- and middle-income Americans can expect steeper taxes because of the bill, while the wealthy will enjoy deep cuts.

Republicans are insistent, however, that their legislation is a boon to middle-income Americans, promising that corporations will create more jobs if they pay less in taxes.

With reform coming at an estimated cost of $1.5 trillion, Grinberg at Georgetown cautioned attendees that corporate-tax reform must be accompanied by adequate offsets in spending or revenue offsets to avoid a medium- and long-term financial crisis.

Congress has some plans to offset the costs of its tax plan, but neither the Senate nor House bills include the balances on spending or revenue Grinberg described.

The professor highlighted some of the provisions in the tax plans as worthwhile but said Congress will likely have to revisit tax reform within a decade.

While lawmakers have painted the current tax code as out of step with tax rates in other developed countries, professor Charles Gustafsan called this into question at Friday’s talk.

Any comparison of corporate tax rates at home and abroad needs to consider that other developed countries have an additional consumption tax known as the added-value tax.

"When you look at the impact of a lower corporate tax rate in those countries, you really have to take into account the realities that there's an alternative form of revenue derivation that we do not have," Gustafsan said.

Comparing the current tax proposals against the last major tax overhaul in 1986, which Gustafson described as diminishing tax rates without a loss of revenue, the professor called it difficult to pin down the GOP’s objectives here.

”I feel like a blind man with a herd of elephants trying to get a grasp on what's happening here," he said.

Georgetown Law professor Stephen Cohen meanwhile boiled down the GOP’s tax plan to three words: "macroeconomic policy malpractice."

Pointing to the country’s 4.1 percent unemployment rate and steady, albeit not spectacular, economic growth, Cohen suggested that cutting the corporate tax rate and increasing the deficit would exacerbate income inequality that has been building for several decades.

Disputing the notion that U.S. corporations are overtaxed in the existing scheme, Cohen told the audience to take tax breaks and loopholes into account and consider what these companies actually pay in taxes.

The actual U.S. corporate rate is 18 percent, Cohen said, which is in line with other developed countries.

"There's no hard, factual evidence that the ... corporate aggregate tax burden of corporate income in the U.S. is too high," he said.

For Cohen, the reason that most corporations choose to manufacture abroad is that they can pay workers less, not because of lower tax rates.

Republicans have promised that cutting the corporate tax rate will drive some of those jobs back to the U.S., and will also increase American wages.

But there is no historical data supporting that assertion, Georgetown law professor Lilian Faulhaber said.

Corporations don’t use extra cash from tax savings to pay workers more unless some regulation or restriction forces them to.

“That’s not what we have,” she said. “There’s no reason that that would be the response.”

Cohen echoed Faulhaber with doubt that tax savings for corporations would translate into higher wages. Corporations will likely use their extra cash to buy back their stock to pay larger dividends, he said.

"I think this bill is a travesty - it's macroeconomic policy malpractice,” Cohen told attendees. “It pretends, contrary to facts, that our current aggregate tax burden  for corporations is excessive compared to other OECD countries. And that's just a lie.”

OECD is an abbreviation for Organization for Economic Cooperation and Development.

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