Business roundtable starts ad campaign against tax hikes: RPT

Yahoo Finance's Rick Newman joined Yahoo Finance Live to discuss top business groups running ads against Biden's tax plan.

Video Transcript

- Let's turn to DC because it looks like big business may be sticking with the Republican Party after all. Lawmakers are turning to Capitol Hill this week. We have the Business Roundtable. Other top business groups are stepping up their efforts to fight President Biden's plan for higher taxes. Rick Newman is looking into this for us. And Rick, explain the argument that they're making.

RICK NEWMAN: It's pretty straightforward. They're basically saying raising taxes, as Biden wants to do from the corporate rate of 21% to 28%, would be bad for business. They are also running some ads targeted to the districts of Democrats in the House, for example, who might be vulnerable for reelection in the 2022 midterms. The message is basically, look, if Democrats really go through with this, we may get on board and start putting our muscle and our fundraising behind Republican opponents.

And in the House, Democrats just have a four seat majority. So, that is definitely within grasp of Republicans in 2022. So, the message from all the big business lobbies is basically, Democrats, if you pass this tax hike, we're going to really get on board and try to defeat some of your most vulnerable members so that-- so the chamber flips back to Republican. So, if you thought that the insurrection at the Capitol, all the Republicans who tried to block Biden from becoming president, the Republican anti-voting laws in Georgia, and Florida, and Texas, and Michigan, if you thought big business was shying away from the party because of all that, nope, doesn't look like it.

JARED BLIKRE: Well, Rick, sticking with taxes, we got the IRS saying that the tax gap may be more than a trillion dollars. What does this mean? Is it a big problem? Should the IRS simply go out and buy a bunch of MMT books?

RICK NEWMAN: Yeah, that was a testimony today from the IRS Commissioner. We know there is a tax gap. The tax gap is the amount of tax that people and businesses in the United States legally owe, but they just don't pay because the IRS can't find it, or they evade taxes somehow. If it's really a trillion dollars a year though, that's an enormous amount of money. Until now, the estimate has been that it's maybe around $150 billion a year.

Just to give you an idea how much a trillion dollars a year is. That would increase federal revenues by at least 1/3, and we're about to have this big fight over the Biden corporate tax hikes. So, that would only raise $120 billion per year at best.

So, the IRS is saying, taxpayers owe us $1 trillion that we're not collecting. Just think what you could do if you could-- if all you were able to do is just go out and find that money. That would fund a lot of infrastructure or anything else any president wanted to do.

- Rick, any idea how the IRS got itself in this position? I mean, how are they missing out on collecting taxes to that size?

RICK NEWMAN: Yeah, it's pretty clear why. Because Congress has gradually cut its budget over time. So, it has less money for enforcement. That means it has fewer resources. It has fewer people to do the audits.

And guess what? The IRS also has the oldest computer systems in the federal government. And this has been deliberate. Republicans have controlled one or both Houses of Congress for most of the last 10 years. And they have deliberately just stood in the way of funding increases for the IRS. In fact, they've cut the budget instead of even just leaving it, keeping it up with inflation.

So, this is a well-known problem. I mean, the IRS just doesn't have enough money to hire people, to hire the-- to buy the technology they need, and to spend the effort it takes to go after sophisticated tax evaders, and it's costing all of us.

JARED BLIKRE: Well, Rick, let me get your take then on an international tax framework. One that Janet Yellen has been pushing for. It kind of reminds me of the European Union, where they have monetary network, but not a united fiscal network. When you ignite the fiscal, at least in some way, what does that do for things? Do we surrender some control there or does the globe profit in some way that I can't think about right now?

RICK NEWMAN: Yeah, what Janet Yellen is trying to do is anticipating that Congress will raise the US rate, maybe not to 28%, but I think it's reasonable that we'll go to 25% or 26%. So, this actually renews the incentive, or enhances the incentive, for US companies to move their-- shift their profits to lower-- to other countries that have lower tax rates. This has been a problem, and it was a big problem that led up-- I mean, it's part of the reason that we did need to lower the rate from 35%.

But what Janet Yellen is pushing for this global minimum tax, which she wants to be at 21%, which would just disincentive, somewhat, US companies from moving their profits overseas. The problem is, everybody agrees this is a problem, but there's not agreement on what the right tax should be, the number. So, there has been agreement that maybe there could be a global minimum tax of 12%, but if the US rate is 28% and the European rate on money shifted over from other countries is 12%, well, that looks like a pretty good arbitrage opportunity.

Jared, I think you could figure that one out. So, it's a sensible idea. I think Janet Yellen is going to have a hard time getting international agreement on this though, at a level that she wants.

- Rick Newman, thanks as always for helping out here with us.