President Obama unveiled his corporate tax hike today, under the guise of tax “reform.” But in fact he complicates the code with a new Rick Santorum-like break for manufacturing companies. (Santorum’s probably none too pleased to see that Obama, the leader in picking winners and losers, has come up with a plan that in one major respect is just like his.) Moreover, it is astonishing, quite frankly, that in the worst economy since the Great Depression Obama would place greater burdens on investors, employers and employees (corporate taxes are pass-through taxes, after all) while making it harder for American companies to succeed overseas.
The plan would lower the nation’s corporate tax rate to 28 percent. At the same time, he wants to boost overall revenues from corporate taxation by banning numerous deductions and loopholes that save companies tens of billions of dollars a year on their tax bills, according to a senior administration official. . . .
Obama is also targeting oil and gas companies for tax increases while promising special breaks for manufacturing companies, according to a senior administration official.
So to be clear: hike taxes on corporations and intensify the practice of picking winners and losers.
Jim Pethokoukis explains some of the plans’ drawbacks including the new minimum tax on overseas profits, even if the profits are not repatriated to the U.S. :
So instead of a carrot, Corporate America gets the stick. Instead of lowering the U.S. rate to a competitive level, Obama would raise the penalty on keeping profits overseas. Indeed, the United States is a huge outlier in that it taxes the foreign profits of multinational companies. Here is Obama’s own Jobs Council:
“While most other developed nations have adopted territorial systems that exempt most or all foreign income from taxes when they are repatriated, the U.S. subjects all worldwide earnings to the corporate income tax when they are brought home to the U.S. This approach actually encourages U.S. companies to keep their earnings abroad rather than investing them here at home. Adopting a territorial tax system would bring us in line with our trading partners and would eliminate the so-called ‘lock-out’ effect in the current worldwide system of taxation that discourages repatriation and investment of the foreign earnings of American companies in the U.S.”
Obama’s debt commission made a similar recommendation.
Put differently, if Airbus and Boeing are competing for work in Asia, Boeing will pay a higher tax rate, thereby making it less competitive.
As Pethokoukis notes, “The Obama plan would actually make the corporate tax code and the U.S. economy less competitive and less productive. But the proposal does neatly fit into the president’s Occupy-inspired campaign theme that wealthy Americans and greedy corporations are to blame for the Great Recession and rising income inequality.”
More fundamentally, it is not reform but an explicit revenue increase, that assumes voters don’t understand that taxes on corporations come out of wages, dividends and stock prices.
When combined with his budget proposal you get some fairly mind-numbing results. The Wall Street Journal reports: “Mr. Obama is proposing to raise the dividend tax rate to the higher personal income tax rate of 39.6% that will kick in next year. Add in the planned phase-out of deductions and exemptions, and the rate hits 41%. Then add the 3.8% investment tax surcharge in ObamaCare, and the new dividend tax rate in 2013 would be 44.8%—nearly three times today’s 15% rate.”