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Dear Mr. President

Both as businesspeople and citizens, CFOs have plenty of advice for the next occupant of 1600 Pennsylvania Avenue.

As they prepare to fill out their ballots, most CFOs would likely admit that the Presidency of the United States is one chief-executive slot they don’t aspire to. But should they ever have the opportunity, most seem prepared to offer some very detailed policy plans.

Kate O’Sullivan is a senior writer at CFO.

How Taxing?

Debating the True Impact of Corporate Tax Rates

The contrasting proposals on corporate rates offered by John McCain and Barack Obama have revived an old debate about the effects of taxation.

For starters, McCain wants to lower the top corporate tax rate from 35 percent to 25 percent, while Obama says he will hold the rate steady. On the other hand, the Illinois Democrat proposes to eliminate capital-gains taxes on start-ups and small businesses. Obama also wants to give small businesses a health-tax credit and research-and-development incentives. Meanwhile, McCain pledges to expand and extend R&D tax credits, and promises to allow businesses to write off their investments in equipment immediately.

Proponents of reducing the corporate tax rate say it would put U.S. companies on a more level playing field with companies in other industrialized countries. The conservative American Enterprise Institute argues that a higher corporate tax reduces the tax base by encouraging companies to invest elsewhere, thus offsetting any revenue gains. Recently, in an analysis of effective corporate tax rates in 85 countries, a team of economists from the World Bank and Harvard University found that increasing the rate by 10 percent reduces the ratio of investment to gross domestic product by 2 percent. They also confirmed that high rates encourage companies to use more debt financing, which is tax deductible but riskier.

But are corporate taxes in America really as high as commonly supposed? The Tax Foundation reports that U.S. corporate taxes are 50 percent higher than for the average country in the Organisation of Economic Cooperation and Development and second only to Japan. However, such figures refer to the statutory tax rate, not the effective rate that firms actually pay once tax breaks are factored in. If all such special exceptions were eliminated, says a 2007 report by the Treasury Department, the top corporate tax rate could be reduced to about 25 percent (versus the current 35 percent) without changing the level of tax revenue currently collected. — Alan Rappeport

Politically Correct?

Gauging the Returns Companies Reap from Their Political Contributions

The power of corporate largesse in politics was first demonstrated in the Presidential election of 1896, when corporate contributions helped Republican William McKinley outspend his Democratic opponent, William Jennings Bryan, by a stunning margin: $16 million to $600,000.Today, companies continue to spend heavily on political donations, and not just to candidates: so far in this election cycle they have donated $214 million to business-backed political action committees and have spent a whopping $1.3 billion on lobbying.


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