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Obama Pushes Corporate Tax Overhaul

Ryan Faughnder |
February 22, 2012 | 10:32 a.m. PST

Executive Editor

 

President Barack Obama is pushing a plan (.pdf) to overhaul the corporate tax system by closing loopholes, lowering the corporate tax rate and providing incentives for manufacturers. 

(Creative Commons)
(Creative Commons)

The top corporate tax rate under the Obama administration’s plan, as crafted by the Treasury Department, would fall to 28 percent from 35 percent, which companies have long complained is too high. The top rate for U.S. manufacturers would drop to 25 percent, which the administration says will encourage manufacturing in the States.

The Treasury said the plan will eliminate dozens of tax loopholes, broadening the tax base while lowering top rates. 

President Barack Obama offered the changes in a statement calling the current tax system “outdated, unfair, and inefficient.”

“In order to make us more competitive and create jobs here at home, we must reform our corporate taxcode,” said Treasury Secretary Tim Geithner in a statement.

Few believe the plan will make it through a divided Congress, even though Republicans have long supported slashing corporate taxes. White House press secretary Jay Carney said at a press briefing Wednesday that the administration hopes Congress will “prove its critics wrong.”

Various reports and studies, however, have concluded that the actual effective corporate tax rate is more like 25 percent currently, and many big companies pay much less.

Douglas Holtz-Eakin, at the National Review, expresses mild reservation at the headline ideas in the plan, saying credit is due to the administration for trying to tackle corporate tax reform. “But 28 is not internationally competitive,” he writes. “To achieve that would require a rate of 25 percent or lower.”

Writes Ezra Klein, economics blogger at the Washington Post, tax reform is no easy task:

Whether anything comes of this document will depend, in no small part, on whether corporations really want a cleaner, simpler tax code, or whether they're more interested in protecting the breaks, loopholes, and tax arrangements they currently have. They are, after all, the primary constituents of this change, they are sophisticated about tax policy and how it affects them, and they are very politically powerful. So they will have ample opportunity to weigh in.

But all of this just goes to show how insanely difficult individual tax reform will be. For one thing, no one can decide on what "revenue neutral" means because the looming expiration of the Bush tax cuts has put at least three plausible definitions on the table: "Revenue neutral" is tax reform assuming their full expiration, tax reform assuming the expiration of only the high-income tax cuts, or tax reform assuming the extension of all the tax cuts. Nothing can be done -- nothing at all -- until that question is settled, and as of yet, the two parties are nowhere near settling it.

The president’s plan was released the same day Republican presidential candidate Mitt Romney released his own tax plan, calling for a 25 percent top corporate tax rate. 

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