The Washington Post

Obama’s business record, cont’d

Tuesday’s column on how business has actually fared under President Obama has attracted some interesting replies. Let’s go through them.

One common response came from the Washington Examiner’s Conn Carroll:

In a sense, Carroll is right: The United States has the highest corporate tax rate in the world.

But in another sense, Carroll is wrong: The United States does not have the highest corporate tax rate in the world.

When people talk about the corporate tax rate, they can be talking about one of two things: The tax rate that the law says corporations should pay, and the tax rate that corporations, after taking advantage of various deductions and exemptions and loopholes, actually pay.

The first is called the “statutory tax rate,” and at 35 percent — 39 percent if you include state taxes — it’s the highest in the world. The second is called the “effective tax rate,” and it’s considerably lower, though still on the high end internationally. Here’s a good graph from The New York Times on how it’s changed in recent years:

(The New York Times)

The Wall Street Journal says the situation is even starker than that: If you include the “bonus depreciation” tax break, which President Obama signed into law and which I mentioned in the column, the effective corporate tax rate in 2011 was 12.1 percent.

So as corporate profits have gone up in recent years, the actual taxes they’ve paid have gone down, in large part due to the recession and an array of tax breaks. Don’t take it from me: “Corporate tax receipts as a share of profits are at their lowest level in at least 40 years,” concluded the Journal.

What’s weirder about this conversation is the idea that our high statutory tax rate on corporations is somehow evidence that the Obama administration is anti-business. The corporate tax rate long predates Obama, and he’s made no move to raise it. Just the opposite, in fact. The Obama administration has argued for corporate tax reform that would bring down the rate by eliminating various deductions and loopholes, and they recently released a white paper (pdf) laying out a number of ideas for how we could do that.

So, in summary: The actual taxes corporations are paying are down under Obama, even as their profits are up. The high statutory tax rate on corporations predates Obama, and his administration has repeatedly argued that we should lower it. There’s plenty to disagree with in how his administration would like to reform corporate taxes. The Obama administration, for instance, wants corporations to pay taxes on overseas income, while many business groups don’t. But it’s hard to see evidence of a particular tilt against private enterprise, which is what Gov. Bobby Jindal said, and what I was responding to.

Next up: Regulations. A reader e-mails:

Noticed you left out all the pro-business efforts Obama did with Obamacare and regulatory power.

Let’s start with “Obamacare.” There’s little doubt that the Affordable Care Act is structurally similar to the reforms Mitt Romney passed in Massachusetts and Republicans proposed in the mid-1990s. That’s not an accident: The Obama administration was hoping to secure bipartisan support for their proposal.

Republicans turned sharply against a number of ideas they’d previously supported when those ideas turned up in Obama’s bill. And you can argue that they were right to do so. Perhaps those are bad ideas. But the Obama administration didn’t go for single payer. They didn’t go, as the Clinton administration had, for an employer mandate. They didn’t even go for a public option, in the end. They went for a system based around private insurers that appeared to be the nearest thing we had to a bipartisan consensus. To argue that they approached health care in a way that was uniquely hostile to private enterprise belies the facts.

As for “regulatory power,” that’s a bit broad, so I’m not really sure how to respond to it. The normal line on this is “regulatory uncertainty,” with example A being the Dodd-Frank financial reforms. Now, we can argue over the quality of those reforms. What we can’t argue over is the quality of the status quo that preceded them, which led to a global financial crisis. Any overhaul of the financial regulation system would have meant facing regulatory uncertainty as the precise details of those regulations got worked out.

Finally, one reader asks why my graph of falling public-sector employment looks so different from this graph from the Heritage Foundation:

The answer is that the federal government, state governments, and local governments do not employ the same number of workers. According to the latest figures from the Bureau of Labor Statistics, the federal government has 2,800,000 employees. State governments employ 5,000,000 workers, and local governments have 14,000,000 workers, largely because local governments are the ones who employ teachers. So the federal workforce can grow even as the total number of government workers falls.

And that’s exactly what’s been happening. The BLS has a data series — CES9000000001, in case you’re interested — tracking all government workers. It includes state, local and federal workers. And it reports that in February 2009, there were 22,577,000 government workers, and in May 2012, there were 21,969,000 government workers, for a total loss of 608,000 workers. Over the same period, the total number of private-sector workers, in case you’re interested, rose from 110,260,000 to 111,040,000, for a gain of 780,000 workers.

The point here isn’t to say whether Obama has been good for business or bad for business. That really depends on your counterfactual. The point is that this conversation should proceed based on actual facts about how business is doing, the taxes they’re paying, and what policies the Obama administration has and hasn’t proposed. Nonsense about how “many in the Obama administration really don’t believe in private enterprise” doesn’t help anyone see the situation more clearly.


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