Kerry to Offer Cut in Corporate Taxes

On his first day back from the ski slopes of Idaho, Kerry pocketed endorsements from former rival Howard Dean and the American Federation of State, County and Municipal Employees. He also met with members of the Democratic National Committee and spoke to African American newspaper publishers.

Bush trumpeted an upbeat economic message at his second appearance in two months in New Hampshire, a state he won by 7,000 votes four years ago and one both candidates consider a tossup this time. Bush stopped at an auto-repair facility at New Hampshire Community Technical Colleges to tout his $250 million grant proposal for job-training programs that team two-year schools with nearby employers.

The president finished his day in Kerry's backyard, appearing at a fundraiser in downtown Boston that a Bush-Cheney '04 official said would generate $1.2 million for the campaign.

How the economy performs over the next seven months could tell a lot about the Nov. 2 election. Yesterday, the Commerce Department reported that the economy grew at a healthy 4.1 percent clip in the final quarter of 2003 and economists forecast similar growth for this year. But the economic recovery is not producing many new jobs, especially in the hardest-hit manufacturing belt. Kerry will deliver his speech in Michigan, a swing state with a 6.6 percent unemployment rate.

Kerry, in documents sent to a few reporters, set an unemployment rate goal of 4.1 percent by 2009, which Lawrence Katz of Harvard projects would add 10 million jobs in the first four years of a Kerry administration. As the Bush administration and others before it have shown, accurate jobs projections are tough to make and can prove wildly off the mark.

The broader goal of the plan is to take away any tax incentive companies have to move operations and jobs overseas and entice them back to the United States with favorable tax treatment. Companies move jobs overseas for reasons including lower taxes, cheaper labor and proximity to markets.

Under law, most U.S. corporations do not have to pay taxes on their foreign income until they bring it back to the United States. Many defer U.S. taxes by keeping their money overseas and reinvesting it there.

Kerry wants to eliminate the incentive for these companies to invest and keep their money in places such as India and Mexico. Kerry insisted on an exemption for those companies with operations in a foreign nation for the purpose of doing business there.

In exchange, he would provide them a one-time chance to bring the cash back with only a small tax hit, 10 percent. Kerry has opposed what he calls a "tax holiday" as a senator but is willing to accept it as part of a broader corporate package, Sperling said.

Because the United States has among the highest corporate taxes, Kerry also favors a small reduction in the U.S. rate to "narrow the gap" with many competitors. "Some companies would view it as a good trade-off, some would not," said American Enterprise Institute economist Eric M. Engen. "But from an economic standpoint, lowering the corporate rate across the board is positive for the economy."

Sperling said Kerry could pay for this new tax break with the reforms to the U.S. international tax code, which the campaign estimates would generate $12 billion annually. He said the "tax holiday" plan would generate roughly enough to pay for a two-year plan to cover the payroll tax costs for many companies that create jobs. This "New Jobs Tax Credit," which Kerry rolled out in August for manufacturers, would be expanded to cover small-business owners with 100 or fewer employees and "other industries affected by outsourcing." It would cost $11 billion a year.

Staff writers Amy Goldstein with Bush and Dan Balz and Howard Kurtz in Washington and researcher Lucy Shackelford contributed to this report.