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Obama Equates Corporate Tax Rate Cut With Increased Spending

by Mike Godfrey,, Washington

02 August 2013

By re-proposing measures for corporate tax reform that he first floated back in early 2012, President Barack Obama would cut the United States headline corporate tax rate, but would also use part of the revenue generated by closing tax breaks to fund additional spending.

The President's framework for corporate tax reform therefore begins with its "revenue-neutral" proposals to eliminate "dozens of tax loopholes to ensure that every corporation pays their fair share, and reinvesting these savings to lower the top corporate tax rate from 35 percent to a globally competitive 28 percent."

Secondly, it is proposed to refocus the manufacturing deduction and use the consequent savings to reduce the effective rate on manufacturing to no more than 25 percent, while encouraging greater research and development and the production of clean energy.

Thirdly, President Obama has put forward a minimum tax on foreign earnings so as not to "give companies incentives to locate production overseas or engage in accounting games to shift profits abroad," and thereby encourage domestic investment; and, fourthly, tax filing would be made simpler for small businesses. He has also proposed to allow those businesses to expense up to USD1m in investments.

However, it is obvious that the President does not envisage that the whole corporate tax reform package will be revenue-neutral from the outset, as "by using one-time revenue raised in the transition to a new business tax system," presumably, for example, partly from the taxation of accumulated overseas earnings, the President would find the funds for infrastructure projects, like repairing roads and bridges.

"I'm going to try offering something that serious people in both parties should be able to support; a deal that simplifies the tax code for our businesses and creates good jobs with good wages for middle-class folks who work at those businesses," he said when announcing his plans in Chattanooga, Tennessee. "I want to use some of the money that we save by closing these loopholes to create more good construction jobs with infrastructure initiatives."

However, Republican leaders in Congress were scathing about his re-proposals. Senate Finance Committee Ranking Member Orrin Hatch (R – Utah) pointed out that "under the guise of so-called 'tax reform,' President Obama unveiled a new 'tax and spend' proposal, which is a flip flop from his and other leading Democrats' previous position of a revenue-neutral corporate tax overhaul."

Even before, the President's speech, Senate Republican Leader Mitch McConnell (R – Kentucky) had commented that the plan "lacks meaningful bipartisan input, and the tax hike it includes is going to dampen any boost businesses might otherwise get to help our economy. And it represents an unmistakable signal that the President has backed away from his campaign-era promise to corporate America that tax reform would be revenue neutral to them."

Above all, however, as expressed by the Speaker of the House of Representatives John Boehner (R – Ohio), "you cannot leave small businesses behind by reforming the corporate tax code without addressing the individual rate – which most small businesses pay – at the same time." On the contrary, while introducing his corporate tax package, the President had confirmed that he is committed to "revenue-raising individual tax reform," as part of a deficit-reduction process.

That led the National Federation of Independent Business President and CEO Dan Danner to note that: "Once again, President Obama has made a major policy speech without offering anything of substance to the real engine of the US economy – small business. Over 75 percent of all small businesses in the United States are taxed at the individual rate. Any discussion of tax reform must include both corporate and individual rates so that there is a level playing field for businesses of all sizes."

TAGS: individuals | Finance | tax | small business | business | entrepreneurs | corporation tax | manufacturing | tax rates | United States | tax breaks | tax reform | construction | individual income tax

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