On Taxes and Soft Drink Corporations

I think we can all agree that America’s tax structure is in severe need of reform. It is complicated, arbitrary, and inefficient, not to mention that it contains several loopholes that give certain companies an unfair advantage. The soft drink industry is a clear example of the our tax structure’s shortcomings. Currently, companies like Coca-Cola and Pepsi are able to manufacture their products overseas for an incredibly low corporate tax rate, while other companies, like Gap and Exxon Mobile must pay rates of 30% to 40%. Why is this so? No one actually knows. An article by David Leonhardt in the NYTimes supports this sentiment:

To many economists, a fairer system would not lavish billions of dollars of tax breaks on only some industries for reasons that are almost accidental. “No one likes the current system,” Donald Marron, a former official in the George W. Bush administration who is now at the Tax Policy Center in Washington, said, speaking for his fellow economists if not for corporate executives.

Even more so, out of all the industries/companies to assign such a favorable tax code to, it seems more logical to hike up taxes for the soft drink industry. The article goes on

Public-health experts note that the soft-drink industry is an especially odd candidate for taxpayer generosity, given its central role in increasing obesity and health costs.

Wouldn’t it solve a lot of problems, i.e. public outrage at the tax code, obesity, etc. to make the corporate tax structure less unfairly favorable to companies like Coca-Cola and Pepsi?

Some say that the US doesn’t have control over them because they are manufacturing in foreign countries, but there is an obvious solution to this. Again the NYT

The weakness in such a system, of course, is that some countries allow companies to operate almost tax-free. And in a globalized economy, many companies have figured out how to put much of their operations in those countries. Thus Ireland has become the world’s cola maker.

One compromise being discussed in Congress is a version of the territorial system — but with a minimum tax for any overseas operations. If companies were not paying at least that minimum to a foreign government, they would have to pay the difference to Washington.

In truth, I make this matter seem so easy to resolve. And reality clearly does not work that way. There are strong lobbying groups that represent these soft drink giants such as the LIFT America Coalition that lawmakers will need to get past. But, despite those challenges, it is important to be aware of an issue, use a bit of common sense, and hopefully garner enough support for change.

http://www.nytimes.com/2013/05/26/opinion/sunday/who-will-crack-the-code.html?ref=opinion

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