Executives from Boeing Co. and Emerson Electric Co. told lawmakers they will struggle to compete with overseas rivals if Congress doesn’t lower maximum corporate tax rates.
Testifying today before the House Ways and Means Committee, the executives said the current 35 percent top corporate tax rate hampers job creation. Walter Galvin, the vice chairman of St. Louis-based Emerson Electric, said existing tax policy puts U.S. businesses at risk of being acquired by companies based in other countries with more favorable tax rates.
“The risk you have is if the U.S. isn’t put on a level playing field, more and more small-cap U.S. companies will be acquired by larger companies in Europe,” he said. “Not having a competitive tax rate with the rest of the world causes more and more jobs to be lost.”
Those comments stand to encourage House Ways and Means Chairman Dave Camp, a Michigan Republican, in his efforts to lower the top corporate rate to 25 percent, which he has said will create U.S. jobs. James Zrust, vice president of tax at Chicago-based Boeing, said businesses are willing to give up some tax breaks for a significant drop in the corporate rate.
“We could support eliminating tax expenditures in order to obtain a meaningful lower corporate tax rate,” he said, without specifying which benefits he would support being eliminated.
Incentive to Invest
James Misplon, vice president of tax at Sears Holdings Corp., based in Hoffman Estates, Illinois, said reducing the corporate tax rate would provide an incentive for retailers to invest in store improvements or new distribution centers.
“These types of investments lead to higher employment both within and outside of the retail industry,” he said.
Misplon also said retailers would support eliminating tax benefits in exchange for lowering the rate. Retailers typically receive few tax benefits, compared with manufacturers that are eligible for a special deduction and research-intensive companies that can receive a special credit.
Representative Sander Levin of Michigan, the top Democrat on the committee, expressed doubt that businesses are open to losing their tax benefits.
“We learned long ago that on the table is different than action,” he said.
Democrats also said they are skeptical that corporate tax cuts would spur the economic growth the executives suggested. Representative Jim McDermott, a Washington Democrat, pressed Galvin on the business effects of reducing tax rates.
“If we lower the tax rate to 25 percent, will you stop laying people off?” McDermott asked.
Galvin said he couldn’t provide any assurances.
‘No Crystal Ball’
“I have no crystal ball as to the sales revenue we’ll have,” he said. “If there is higher growth in the U.S., we will obviously grow.”
A report released yesterday by Citizens for Tax Justice said 12 corporations, including Boeing, paid an effective tax rate of negative 1.5 percent on $171 billion in profits earned between 2008 and 2010. Boeing’s effective rate in that period was a negative 1.8 percent on $9.7 billion in profits, according to the group, which is backed by labor groups.
Representative Pete Stark, a California Democrat, referred to the report at the hearing and asked Boeing’s Zrust by how much tax rates should be dropped. Zrust didn’t specify a rate. He said Boeing’s tax bill is poised to rise in the next three years because the company won’t be able to claim as many deductions for airplanes that are on track for delivery.
Stark remained skeptical.
“Oh yeah?” he said. “How much more do you think Boeing is going to pay us?”