The trouble with Obama’s manufacturing tax breaks
There were a whole lot of tax breaks proposed in last night’s State of the Union address — many of them geared toward reviving U.S. manufacturing. (Here’s the White House fact sheet.)
Companies that created jobs in the U.S. would get tax breaks. High-tech manufacturers would see their deductions doubled. All multinational companies would have to pay a “minimum tax” on profits overseas, no matter where they kept their money. But would any of this work? Howard Gleckman argues that making the tax code more complex in this fashion might actually prove counterproductive:
For instance, think about a start-up software company that has to compete with an established firm. Because new businesses rarely make money in their first years, extra tax deductions do them no good. By contrast, a more established competitor, especially if it can qualify for Obama’s high-tech tax break, would benefit — perhaps substantially.
The multinationals’ minimum tax would be entirely unworkable. Even if Congress passed the levy, which it won’t, those firms will find ways around it. Minimum taxes are Band-Aides for a flawed tax system. The solution is not to create a new penalty for firms that learn to manipulate the law, it is to fix the basic law in the first place.
Gleckman would prefer the old, boring approach — eliminating many of the various loopholes, carve-outs and exceptions in the corporate tax and simply making the rates flatter and fairer. And yes, this is all likely moot because the prospects of any tax reform happening this year are fairly dim.