Budget Reality Part 4 -- Corporate Tax Breaks

04/01/2011 03:59 pm ET | Updated May 25, 2011

Budget Reality
Part 4 - Corporate Tax Breaks

4. In the 1950's, Federal taxation resulted in about a 40:60 split between corporate taxes and personal income taxes. Over the last 30 years, however, there has been a steady shift reducing corporate taxes more than personal income taxes, so that corporations now pay around 20% and individuals close to 80%. This needs to be shifted back toward the 40:60 split.

While nominal corporate tax rates may be higher than those in many other countries, the effective corporate tax rate is quite low. Nominal rates are those on the last income over a certain limit. Effective rates are the net rates on total income. Right now, the average effective corporate tax rate is about 15%.

While shocking, this is no surprise. It is the result of the army of lobbyists and their Congressional friends working year after year to place thousands little breaks, shelters, subsidies, and incentives into the tax code. While the worst of these will continue to need fixing, fighting these one-by-one is not going to work, even if the effort is worthwhile.

We need to enact a more rigorous Alternative Minimum Tax code for corporations, which brings their share into better balance with personal income taxes. What this means is that no matter what the tax code allows in preferences and deductions, a minimum tax has to be collected. The current AMT system needs to be revised to ensure that corporations pay their fair share of federal income. Over the next five years, we should start with a real AMT of 15%, rising each year by 2% to reach a long-term AMT of 25% on corporate income. This would result in a few hundred billion a year in income to reduce the national debt.

In sum, these four major budget areas, the Bush tax cuts, the military budget, the costs of health care, and corporate tax breaks, add up to well over a trillion a year in unpaid-for debt. Anyone who wants to distract us by fiddling with small change needs to be laughed out of the room, or recalled, or otherwise ridiculed and and labeled not serious about the debt.

We have been borrowing from the future for our current excess spending. This is not wise. This is not fair to our children. This is not right. This is not sustainable.

If we are to begin to grow up and really deal with deficits and the national debt, the focus has to be on the big ticket areas discussed in these four articles. The serious work on deficits and the debt is clear. What is not clear is who in Congress and the White House has the courage to start on this work...