Corporations don’t need a tax cut, so why is Obama proposing one?
The Obama administration is proposing to lower corporate taxes from the current 35 per cent to 28 per cent for most companies and to 25 per cent for manufacturers.
The move is supposed to be “revenue neutral” - meaning the administration is also proposing to close assorted corporate tax loopholes to offset the lost revenues. One such loophole allows corporations to park their earnings overseas where taxes are lower.
Why isn’t the White House just proposing to close the loopholes without reducing overall corporate tax rates? That would generate more tax revenue that could be used for, say, public schools.
This is actually a very sensible move in the framework of a capitalist system. Lets face it, we have some of the highest corporate tax rates in the developed world if you actually pay them. This means that companies with legal teams of the shadiest scumbags they could afford pay next to nothing and take advantage of offshore profits using the loophole Obama promises to close. Meanwhile, small businesses, particularly in the tech sector and other valuable sectors including manufacturing are pushed overseas because their focus is not on the cynical manipulation of the system like the financial sector, their focus is on production and innovation.
I don’t think this is right. Most small businesses don’t pay the corporate tax; they’re organized as partnerships or sole proprietorships and they pay the individual rate. Those folks won’t see any benefits from the proposed reform. Moreover, you’re drawing this distinction between the financial sector and “valuable sectors” with respect to the degree of their use of “legal teams of the shadiest scumbags” that just isn’t realistic. Manufacturers like GM and Ford, natural resource extractors like Exxon Mobil and Shell, consumer products companies like Proctor & Gamble - I assure you, these guys are mostly retaining the same white shoe firms as Goldman Sachs, Citigroup and BofA/Merrill Lynch. The distinction between larger and smaller corporations is more apt, as they really do interact with the tax code in different ways. But I’m not convinced that there’s something really special about small or midsized businesses such that we ought to shift the tax burden off them and on to larger businesses. That calls for more of an argument than just asserting that smaller corporations are more productive.
…On top of all this, the revenue neutral approach is one that is just the icing on the cake…
The revenue neutral approach is what makes me think the impact on US growth is going to be pretty negligible. The overall tax burden on US corporations is going to stay the same. The biggest effect is going to be to reduce tax related legal/compliance costs for US corporations, which isn’t nothing, but the benefits of that will mostly flow to the largest corporations that have the largest compliance costs.
Posted on Tuesday, 28 February 2012