According to Mike Allen’s “Playbook”—a daily memo of DC conventional wisdom—the biggest story of the day involves remarks by the CEO of Coca-Cola about the horrid US tax structure. Mukhtar Kent says that his company finds it easier to do business with China and Brazil than the United States because of our antiquated and unfair tax code:
“They’re learning very fast, these countries,” he said. “In the west, we’re forgetting what really worked 20 years ago. In China and other markets around the world, you see the kind of attention to detail about how business works and how business creates employment.”
“I believe the U.S. owes itself to create a 21st century tax policy for individuals as well as businesses,” he said. Mr. Kent, speaking on the sidelines of the Clinton Global Initiative conference, hit out specifically at US provisions that tax companies for repatriating cash earned overseas. Coke does not disclose how much cash it holds overseas.
“If you talk about an American company doing business in the world today with its Chinese, Russian, European or Japanese counterparts, of course we’re disadvantaged,” Mr. Kent said. “A Chinese or Swiss company can do whatever its wants with those funds [earned overseas]. When we want to bring them back, we are faced with a very large tax burden.”
Allen breaks his supposed journalistic objectivity for a moment, and dubs this plea for lower corporate tax rates a “chilling story” that will “drive debate for ’12 and SuperCommittee.” He adds that “This is a massive wakeup call for official Washington…. The Coke dude’s sentiments, which we hear CONSTANTLY and CONSISTENTLY from executives around the country, explain why an independent presidential candidate could have historic support, and why big money is panting after New Jersey Gov. Chris Christie.” (Emphasis is his).
Indeed, Republicans are already seizing on Kent’s comments. Virginia Governor Bob McDonnell, who is rumored to be on many a vice-presidential short list, said today that he was “staggered” by Kent’s comments, and echoing Allen, said it should be a “wakeup call” to Washington.
This is shaping up to be a major talking point for lowering corporate tax burdens, akin to the Democrats’ promotion of Warren Buffett’s pro-tax position. So it’s very important to get this straight: in virtually every way, it’s ludicrous to listen to what the CEO of Coca-Cola has to say about federal taxes.
For one thing, Coca-Cola enjoys very low federal taxes, and pays a lower rate than most Americans. According to Citizens for Tax Justice, the company’s current federal tax expense is $470 million, which is only 6.5 percent of the $7.2 billion in pre-tax profits that Coca-Cola reported last year. That’s a pretty rosy rate, and certainly does call for a retooling of the tax code—though not in the way Mukhtar Kent wants. (The company told CTJ they actually paid at a 38 percent rate, but would not release any documentation).