At first blush, headlines such as "Obama Unveils Plan to Cut Corporate Tax Rate" seem out of place. Isn't it more likely that Republicans would push for a corporate tax cut? With all of President Obama's recent economic populism, does this signal a move to the right?
Not really, no. In fact, Obama has been calling for a cut in the corporate tax rate for a long while, and it need not be considered a conservative move.
Getty Images
Geithner unveiled the administration's tax-reform blueprint at a briefing today.
President Obama asked Congress on Wednesday to scrub the corporate tax code of dozens of loopholes and subsidies to reduce the top rate to 28 percent, from 35 percent, while giving preferences to manufacturers that would set their maximum effective rate at 25 percent.
Mr. Obama's proposal, outlined by Treasury Secretary Timothy F. Geithner at a midday briefing, also would establish a minimum tax on multinational corporations' foreign earnings -- a feature that Republicans immediately denounced.
The problem is with the dramatic flaws in the status quo. On paper, the corporate tax rate is 35%, but thanks to a series of loopholes and tax giveaways, plenty of corporations pay a rate much lower than that (and some end up paying nothing at all).
The resulting structure is a mess -- we have high rates, but collect less revenue because the code is filled with enough holes to resemble Swiss cheese. When Obama talks about lowering corporate tax rates from 35% to 28%, he's also talking about getting some corporations to start paying the taxes they're avoiding now.
It seems hard to believe, but the data is unambiguous: we have one of the highest corporate tax rates in the world, but the actual income tax paid by corporations "is one of the lowest in the world."
David Leonhardt had a good piece on this a year ago, noting not only the loophole-ridden status quo, but also the fact that the system isn't actually generating the revenue for the treasury it's supposed to. Among Leonhardt's findings: about a fourth of the companies included in the S&P 500 pay a total corporate tax rate of less than 20%. "Over the last five years," he reported, "Boeing paid a total tax rate of just 4.5 percent, according to Capital IQ. Southwest Airlines paid 6.3 percent. And the list goes on: Yahoo paid 7 percent; Prudential Financial, 7.6 percent; General Electric, 14.3 percent."
The politics of this is trickier than it should be. The White House and congressional Republicans agree that reform is worthwhile, but those loopholes that lower corporate tax burdens are tough to eliminate for obvious reasons -- powerful businesses are paying a small fraction of what they're supposed to pay, and they're going to hire a legion of lobbyists to keep those loopholes in place. It's one of the reasons today's announcement from the administration is interesting, but not expected to make much of a difference of on Capitol Hill.
Still, it's a debate worth having. The new administration plan closes a series of loopholes, ends unnecessary tax giveaways (including breaks for the oil industry), and eliminates the "carried interest" policy that allows folks like Mitt Romney to pay a lower rate than the middle class.
It's not perfect -- like Robert McIntyre, I'd prefer a tax-reform plan that actually raises new revenues -- but if this is an opening bid from the White House in anticipation of a larger debate over tax reform, it's not a bad place to start the conversation.
Leave a Comment:
Now if we could simply give him a democratic Congress willing to accept his proposal...before they get bought off by the lobbyists.
Sorry dude...
There are already enough Corporately Owned Dumbocrap Senators that a 'filibuster proof' senate will never be achieved while Obama is president.
I would argue that was the case before Citizens United and it is definitely so now!
If you hear a republican politician talking about the government in DC being broken, just remember that they are not complaining; they are bragging about what they have accomplished!
What on earth is he thinking?
He knows that he can't get the Republicans to give him an increase in taxes on the rich.
So who's going to make up the difference? The middle class of course.
If this was coupled with an increase in taxes on the wealthy, I could buy off, although I'd still disagree.
So you're going to give GE, Exxon, who pay no corporate taxes another break.
If GE loses it's loopholes they might actually pay a tax though.
@Dogjudge, did you read what Benen patiently laid out with regard to this topic? Summary:
So, the sky is *not* falling.
So this would in effect be raising taxes on corporations, correct?
.
But... if, in the context of a situation where everyone's talking about how we need to cut the deficit NOW! or YESTERDAY!!! and the president's opening gambit, which is sure to be derided as Kenyan, socialist, and probably inspired by sharia law, is a plan that does not lower the deficit, it is hard to see how this can end well.
There must be obvious flaws in your arguments as Mitt Romney has assured us that his real tax rate is closer to 50% than the reported less than 14%; because corporations pay a 35% tax rate. Mittens would not lie to us, would he?
Only every time he opens his mouth.
I suppose if you cancel their loopholes, then at least these companies would be paying something - which is more than the zero dollars that they currently get away with!!
Yeah, but this is a really conservative move (although that's not necessarily to imply it is or isn't a good idea). I disagree w/ Benen that isn't isn't 'conservative.' This is the same thing Reagan did. The argument from the right is that when you lower taxes you increase revenues. This isn't actually true: lowering the rate in and of itself doesn't increase revenues. What increases revenues? Closing the loopholes. Every time we've lowered the corporate tax rate we've coupled that w/ closing loopholes. It is, essentially, a classic form of compromise between the two parties. It will not increase revenues to meet spending or to start paying off long term debt, but it will stop businesses from getting away w/ paying close to nothing in taxes. The inherit problem w/ this? It will only be a matter of years before the tax code is once again riddled full of holes. That means the net effect of this compromise- just like w/ Reagan- will be businesses going from 14.3% to something like 8%.
That's why other conservatives argue our focus should be to keep the rate the same, but close the loopholes. Which now means Obama has moved to the right of some Republicans and some conservative pundits. This is not a smart move on his part because it won't give him negotiating power. If he had wanted to end up here he should've started w/ the idea that he would close the loopholes first then move over to a lower total tax rate as a compromise. This is just like when he dropped the public option w/o there even being a debate. Obama does not know how to negotiate.
Lowering corporate taxes and fixing loopholes? Watching the Republicans condemn this will be fun. This will not be a good year for them.
Any changes to the corporate tax must be linked to the elimination of subsidies and tax breaks that do not create jobs in the US. Let's see if the Chamber of Commerce gets behind this reform. I doubt it. They will support the lower tax and nothing else.
This is starting to sound like the witch-hunts religious extremists did in our past history. There was a town in Europe where every woman was killed because they all were accused of being a witch. But this time their target is our President Obama. When are these people going to stop this nonsense rhetoric.
I just wish that the basic tax rates were set by first taking the tax expenditures into account and automatically adjusting the rates to generate the budgeted income.
That way, every time someone gets a sweetheart tax break, all of the other corporate lobbyists will do their best to stomp it out. Zero-sum game, Baby.
I think what you are saying is that the rates should be set after net income which is defined as income less the cost of goods sold. It works if you eliminate the special tax credits and subsidies. But some tax credits and subsidies are necessary to promote certain policies such a creating jobs and R & D for companies. Unfortunately, these credits and subsidies have gotten out of hand. The biggest change in corporate taxes would be to tax overseas earnings regardless of whether the money is in or out of the US. That would end the corporate stashing of cash overseas and bring the money back here. Good luck trying to make those changes. Lobbyists will never let this pass.
Not exactly, Mike. I mean that Congress sets all the breaks they want to and budget for the income they are planning. Whereupon an agency cranks the numbers and adjusts the rate such that, after all the breaks, taxes generate the revenue that the budget calls for.
Lately we've treated the tax code as a source of goodies and then are so surprised when we get a deficit. Much better would be to set the spending, revenue, and borrowing up front. Then include the increase (if any) of the debt ceiling at the same time. No surprises allowed.
You can't have a fluctuating tax rate because it creates uncertainty and it would be a nightmare to administer.
This looks like a good piece to put out to Americans at this time, tax time. For one thing, it is our President's job to put together a package for legislation. Also, we need to have the conversation, to be able to expose what the tax code is and how corporations have been using lobbyists to benefit their profits. This is precisely why the corporations have been buying politicians. The conversation is a big one; it gets wonky; so any time we can come back to it helps us clarify who is the opposition and what they are are really doing with the power they already have. There's so much more to say, but what I really want to add to this blog is that I think it is effective that our President chose to release this package at this time because people are thinking about their own tax burden or return and we have been getting nothing but outrageous political sound bites that pull us into a culture war and spend our emotional energy. So, by offering a concrete move that would bring more revenue into our country and relief to our economy, our President offers us leadership to consider and work on issues that have substance to affect everybody equally. I say, "good timing."
What Obama should do is tell those corporations that moved their headquarters to other countries to either come back or be declared a foreign company not under the protection of the USA. The patriotic Haleburton received a 6 billion contract from Chaney(former CEO) for Iraq and rewarded the taxpayer by moving their corporate headquarters to Dubai. We should tax them for every job they exported and give them incentives to hire here. I support the lowering of the corporate tax rate but only to companies that stay here or plan to move back. The rest should be taxed at a 50% rate on their USA earnings
He is gonna give all his buddies the bankers and large corporations even more of a tax break and then the middle class will pay for it just like the bailout.
They are Obama's biggest Financial contributors, Sold Us All Out Again.
Have any Democrats ever considered Ron Paul as a option and not Obama or his republican counterparts Mitt "mentally challenged" Romney or Rick "I rode here on the Duggar's bus" Santorum
Come on show no alliance to a party but to a candidate that will stop the debt,the wars,the bailouts,equals rights for all people gay & straight, black or white, religion or no religion,ones right to privacy,our constitutionally guaranteed rights for ALL.
Please think with your mind and not your heart, logic must prevail over emotion or Party Lines.This has been my plea to my fellow citizens.
I am an Independent, not affiliated with any party. Ron Paul sounds good when it comes to most of his social issues. It is when you get into what he would do with the government if he became president that it gets problematic.
He wants to get rid of the Dept. of Education. Why is that problematic? For me, if you get rid of any kind of national standards, how do the states talk to each other about educational goals? America's future rests with its younger generations, and if Florida has a mediocre standard, Oregon has a standard higher than that, etc. how do we reconcile this when it comes to getting into college and trying to get a job later on? How would this affect fields in science? If some states emphasize it and some don't, then that would cause more issues in the long run, I think. This is, of course, ignoring the HUGE budget shortfalls that would occur to schools all over the country as a result, thus resulting in an educational system that is even more dysfunctional than it is now. Homeschooling is not an option for families where both parents work full time or single parent households. It just doesn't stand up to scrutiny, in my opinion.
He also wants to get rid of HUD. While it is true that states have taken over some of these programs, these programs still rely on national funding. They lose that funding if it goes away, for the most part. Therefore, poor people who benefit from these programs end up getting screwed. In an economy where people are less and less likely to get out of their designated income brackets, this seems unfair, at least to me.
He wants to get rid of the Department of Energy as well. Who then is to oversee the nuclear waste procedures. The states would require extra funding to do so, as it is a pretty big job. Or is Dr. Paul proposing that the DOE be meshed with the DOD, as the DOD is the department that will be using them. If that is the case then how would that work?
Perhaps the most questionable thing, to me, is the fact that Dr. Paul does nothing to increase American revenue- taxes. He would permanently extend the Bush Tax Plan and decreases the amount of corporate taxes that are paid. He would get rid of the Estate Tax (which really only impacts the extremely wealthy anyway). How would that help us get rid of our debt exactly? I can see cutting the President and Congress's salaries, etc- but $39,000? That seems a bit extreme (even to a poor person like me).
I have a few friends who love Ron Paul and have tried to talk me into him over and over, but I just can't do it. You are right, his social issues (if you exclude his overtly racist comments from as recently as the 90's) are pretty decent. However, I do not see how his proposed policies would benefit America in the long run. Not to mention, that even if he is elected President, he would still have to have the Congress be willing to implement these changes- no easy feat, especially concerning the pay downgrades (Presidents don't pass legislation on their own). If they did, you would have to wonder how many loopholes there were and if it really constituted as change at all.
Ummmm...Judah's Light, Wall Street gave 1.5 million to mitt robme. The president recieved 100,000. And by the way? Screw ron paul...and his boy.
Not a bad place to start? You think a conversation with Republicans about tax reform that starts here could evolve in the direction of raising revenues? Have you been paying attention for the last century?
Mouzer, I have to disagree with you about the wisdom of President Obama placing the reduction in tax rates together with closing loopholes and subsidies.
This is directed at coporations that currently aren't paying anything close to the 35% offical tax rate. How can those corporations, or their lobbyists, convincingly argue to keep the loophholes/subsidies AND still receive a reduction in their tax rate? More importantly, how can Republicans direct an argument to voters against this proposal?
It's not as if the corporations will take away all those great jobs they've provided us with. Oh, wait...that's right, we're STILL clawing our way out of a recession caused by some of the very same corporations. That don't want to pay their taxes...
Judah's Kight, I'm a Democrat and I've NEVER considered supporting Ron Paul. You see, I have a defect - I read history. I know exactly what the gold standard does to ANY economy that embraces it.
I am not sure what your disagreement is? I understand his position: my point is that he showed his cards way too early. He could've gotten to the same position w/o showing his cards so quickly which would've given him a better negotiating position. The problem you're forgetting is that people will run against this because they have done so historically. Look at the debate around cutting taxes under Reagan and Kennedy. Virtually the same thing was done- lower the total corporate rate, but compromise by also cutting loopholes. If Obama had proposed cutting loopholes to start then he could've 'negotiated' to the lower rate of 28%. By starting out w/ 28% he has nothing to hold against Republicans. All they have to do to flip this argument is argue that we go from 28 to 20. And that means the compromise will end up being something entirely lower than what PBO is proposing. That or the compromise will end up being barely any loopholes closed which means a huge tax break for the rich. Because he's placed himself to the right of some Republicans he's put himself into an awkward position just like he did w/ ACA. In his mind this is a good place to start negotiations because it's so much closer to what everyone else wants. His plan is incredibly similar to that of Romney's and Santorum's. But what he doesn't understand is that the Republicans always move to the right when the President does. Their net reaction will be to shift further right. I won't be surprised if the net effect of this now will be to return to discussions about why we need a flat tax or a consumption tax.
You probably are completely correct in your analysis, unfortunately.
well I'm not trying to insult the man. I like PBO as a person and I think he's a good CinC. I just think he has this nasty tendency to show his cards when he shouldn't. But then again I don't work in Washington so maybe he knows something that I don't. I could be the ignorant one here- that's entirely possible ;-). It just seems to me that if he started w/ "we're going to close loopholes" then the Republicans would've hollered about how we need to lower the rate if we're cutting loopholes. Then he could've came out and said "we're going to compromise by lowering the rate to 28%." OF COURSE I am making the error that Republicans would still be satisfied and that the media wouldn't feed that hypothetical situation as 'Obama caves to Republicans' as opposed to a well thought out compromise. So, like I said, it may still be that he's the Jedi Master (as Jon Stewart has said) and I'm just an ewok ;-).
Some of the people posting didn't grasp the implications. What Pres. Obama is suggesting won't need to make up the difference by raising taxes on anyone else. What he is saying is that the real tax rate that corporations are now paying is way below 35% because of loopholes. If you eliminate the loopholes, then you can lower the legal tax rate and still come out ahead because the actual taxes that corporations will have to pay will increase. People who have been paying attention to the discussion about de juro corporate tax rates vs. de facto tax rates knew this already.