"Business Loves Hillary!" was the gushing declarative that appeared on a recent cover of Fortune. The magazine's political conclusion seemed validated by a June 26 Manhattan fundraiser for Senator Clinton hosted by multibillionaire business legend Warren Buffett. Clinton praised Buffett as "patriotic" for understanding it was the national duty of wealthier Americans to pay higher taxes.
And guess what, if Clinton or any of the other Democratic presidential candidates gets elected, it's a fair bet that corporate America will get a chance to do its duty. In a May 29 speech, Clinton said, "It's simply not fair that as corporate profits have skyrocketed, the percentage of taxes paid by corporations [has] fallen...It's as though we've gone back to the era of the robber barons." During the recent Democratic presidential debate at Howard University, the major candidates agreed with John Edwards on the need to "eliminate all tax breaks for companies who are taking their jobs overseas and getting a tax break for doing it."
The Blackstone effect. But congressional Democrats aren't waiting until after the next election to take action. Already on Capitol Hill, there are efforts to make companies pay more, such as doubling the tax rate on publicly traded, private-equity partnerships, like Blackstone Group. It might well pass, perhaps attached to a bill that would patch the alternative minimum tax. That would be a tough veto for President Bush, since he could be portrayed as favoring Wall Streeters—like nouveau billionaire and Blackstone CEO Stephen Schwarzman—over middle-class folks suddenly slammed by the AMT.
Now some execs, though perhaps none at Clinton's Wall Street wingding, might point out that Uncle Sam hardly gives companies a pass. The combined top federal, state, and local corporate tax rate in the United States of 39.3 percent is the second-highest among major economies and nearly 11 percentage points above the average. Back in 2000, the average international tax rate was 33.6 percent, but governments have been slashing rates like mad as they compete to attract foreign investment. The rate differential is one reason U.S. companies try to avoid repatriating profits that they make overseas.
I recently asked Lawrence Summers, President Clinton's final treasury secretary, about corporate taxes. His response: "Yeah, we've got the second-highest tax rate in the world, but the fourth-least revenue collection [as a share of gross domestic product] in the world. The system does need to be changed, but not in a way that will in the end cause them to pay less taxes."
Yet companies are paying more already. In 2006, the feds took in $354 billion in corporate income taxes, 70 percent more than in 2000. And perhaps lowering corporate rates might actually generate more business and revenue. In an analysis, Maya MacGuineas of the liberal New America Foundation found that "lower tax rates connect to higher growth" around the globe.
Then there's the old axiom that says whatever you tax you get less of. Do we want less private-equity investment, which is already getting pinched by higher interest rates? A well-known 1997 study of leveraged-buyout activity in the 1980s—LBO firms were the private-equity firms of their day—found the benefits to the economy to be "positive overall," and many credit all that corporate restructuring back then for helping create what's been a quarter-century economic boom. Maybe higher corporate taxes won't ding the economy. But if they do, perhaps Fortune will run this cover story in 2010—"Business and President Hillary: The End of the Affair."