Obama Plans to Slash Corporate Tax Rate And Close Loopholes: Why It May Not Work
The Obama Administration has offered a plan for a corporate tax overhaul. This proposal aims to cut the corporate tax rate from 35% to 28%, which would seem to be a cozying up to corporations-- although the plan in theory also eliminates loopholes and is an attempt to target tax-avoidance gambits by those same corporations.
This may be largely seen as an election-year move, says theNew York Times. It's an effort to offer a counter to whatever tax plan Mitt Romney has up his sleeve.
President Obama will ask Congress to scrub the corporate tax code of dozens of loopholes and subsidies to reduce the top rate to 28 percent, down from 35 percent, while giving preferences to manufacturers that would set their maximum effective rate at 25 percent, a senior administration official said on Tuesday.
Mr. Obama also would establish a minimum tax on multinational corporations’ foreign earnings, the official said, to discourage “accounting games to shift profits abroad” or actual relocation of production overseas.
With the framework for changes that the Treasury secretary, Timothy F. Geithner, will outline on Wednesday, Mr. Obama will enter an election-year debate with Republicans in Congress and in the presidential race who seek even lower taxes for businesses. But an overhaul of the corporate code is unlikely this year, given that political backdrop and the complexity of an undertaking that would generate a lobbying frenzy as businesses vie to defend old tax breaks or win new ones.
This is a response to right-wing critique of our "high" corporate tax rates--but on the other hand, it would theoretically extract concessions from those corporations who avoid paying their share now: "Corporate taxes make up an increasingly small share of the federal government’s revenue, in part because of tax-avoidance maneuvers by businesses."
Here's the problem with this seemingly fair trade, though. The Campaign for America's future's Robert Borosage calls foul on the whole trading tax rates for loopholes closing argument, insisting that until corporate lobbies loosen their grip on congress, it's a devil's bargain:
“But the proposal is promoted as revenue neutral at a time when corporations pay an historically low share of the tax burden. And the entire proposition of lowering rates in exchange for closing loopholes is, as we learned with the Reagan tax reforms, something of a put-on. The loopholes are closed, but the corporate lobbies stay in place. In time, the rates have come down but the loopholes have returned. Then, there is another push to `simplify’ the tax code, lower the top rates, and close loopholes. We’ve seen this trick before; there is no reason to fall for it again.”