Wednesday, February 22, 2012

Obama tax proposal: gambit or not, it's a smart move

Supposedly, today President Obama will unveil his plan for taxing corporate America. According to the Washington Post, he will propose cutting--yes, cutting--the corporate rate to 28% while simultaneously eliminating many of the tax breaks and reductions for corporations in the tax code.

Of course, specifics matter here. The WaPo article suggests Obama will target oil and gas companies for tax increases--i.e. look to eliminate deductions that benefit them--while trying to forge tax reductions for manufacturing companies. Personally, I'd like to see all of the deductions, tax breaks, and the like go the way of the dodo. There's little chance of that, though.

Obama's plan for the corporate tax code is really Geithner's plan, and it's one the latter has been working on for quite a while (which does not, by the way, necessarily make it a good plan). And there's no doubt that the tax code is a mess, when it comes to corporations. There are so many specialty exemptions that have been carved out as to make the whole thing a joke.

People complain that the U.S. corporate rate is too high, and that's absolutely true. It's one of the highest in the world at 35%, higher than almost all of the industrialized world. But businesses in many industries are not paying a 35% rate--not even close--because of all the loopholes and exemptions that have been added to the code via Congress (it's just another kind of pork).

Look at this table, from an American Enterprise Institute study:

The effective marginal rate for corporations in the United States--in 2010--was 23.6%, lower than a number of European and Western nations and not substantially higher than many others. Given the infrastructure--in both a financial and physical sense--that the US possesses and that benefits corporations here, a slightly higher rate is simply not that unfair. But of course, these numbers are predicated on averages, and they are lower--again--because specific companies get huge breaks, while others pay through the nose.

So, the idea of cutting away all of those deductions and exemptions is a good one. As is the idea of lowering the overall rate. The American Enterprise Institute, however (along with many on the right), has already launched an attack on the administration's recommendations. To be sure, the plan does not go far enough, with regard to lowering the overall rate, and there will no doubt be many specific problems, but it is a start, it does begin to address problems that need to be addressed.

The plan--once fully revealed--still needs to work its way through Congress, as well. And given the Republican-controlled House, there will be ample opportunity to make necessary changes.

I realize this is an election year and I concur with the general idea that the Obama Administration has done serious damage to the US economy and needs to go, but I think it's a bad idea to attack every idea presented by the administration just because they present it. This is a perfect case in point. Geithner's plan revolves around cutting rates and streamlining the tax code; that's exactly where the conversation needs to be and a plan that makes that happen should be welcomed with open arms by conservatives for the opportunities it will present.

Many pundits have recently argued that the OWS movement was effective because it changed the conversation in Washington, put progressive issues on the table. But as we can from Obama's proposal here, that's really not the case. Fiscal sanity remains a powerful talking point and by making these suggestions, the administration is--in a sense--admitting to problems and accepting the parameters of the discussion desired by conservatives and libertarians, when it comes to taxation and corporate America.

Attack the administration where it deserves to be attacked, but not just for the sake of the attack.

Cheers, all.

2 comments:

  1. "The plan--once fully revealed"

    You and I have a small disagreement, which time will heal. I predict that when the "plan" is fully revealed, it will be consistent with all the previous Obama objectives. To be bad for the nation, it would be shifting the corporate tax by "distributing" whatever loopholes they "just cannot get rid of".

    They dangle the prospect of removing all loopholes and special privileges, while with surety creating an entirely new tax, and elevating the new "flat" rate to above the present average.

    Raise the effective rate, make it sound like an overdue fix the Republicans should have advanced earlier, and take credit where disdain was well deserved. That would be consistent with previous Obamifications.

    Why should I think the leopard has changed it's spots at this juncture?

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  2. I don't disagree that there will be problems. But the basic idea of lowering the rate and eliminating loopholes/deductions is what they;re floating. And that's a much better starting point than increasing taxes and "investing" in green energy and the like.

    And they've decided to go down this road because of the Election, I think. Provides a great opportunity for Congress to push the envelope, so to speak.

    But regardless, I'm still pleased that the admin--mostly Geithner, I'm thinking--recognizes the basis for the problems in corporate taxes.

    Cheers!

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