After months of trying to set a new, friendlier tone with the business community, President Obama announced a budget plan Monday that includes old proposals that have inflamed corporate America.
The fiscal 2012 budget outlines more than $200 billion in higher taxes for oil and gas companies, banks and multinational firms — ideas that have been offered in the past and vehemently opposed by industry. It does not detail a core part of Obama’s effort to win the trust of big business: an overhaul of the corporate tax code that would lower the overall rate that firms pay.
“I’m just extremely disappointed,” said Caroline Harris, chief tax counsel for the U.S. Chamber of Commerce. “I certainly did not expect to see a full plan. But I did think some good-faith effort would have gone a long way with the business community.”
The budget also includes a new proposal that could increase costs for businesses by raising the fee they pay the government to backstop their pensions plans.
Now that Republicans have regained control of the House, there is little chance that the proposed business tax increases will become a reality, corporate lobbyists said.
“Nobody can take seriously their proposed tax increases because they’re not going anywhere,” said Ken Kies, a longtime corporate tax lobbyist. “Since they put these in the budget last year, it’s not a shocker they’ve included them again.”
The White House says it remains interested in working with lawmakers and businesses to overhaul of the corporate tax code.
Business groups have called on the administration to lower the top corporate tax rate of 35 percent, one of the highest in the world.
But the rate actually paid by companies, particularly pharmaceutical and technology firms, can be much lower. Many corporations with international operations have found ways to lower their taxes through elaborate accounting. At least 28 publicly traded U.S. firms with a market cap higher than $10 billion paid an effective tax rate below 20 percent over the past four years, according to a research arm of MF Global, a financial firm.
The budget proposes raising the taxes companies pay on overseas profits by $129 billion over the next 10 years; last year’s budget proposed $117 billion in tax increases. The White House would also charge banks $30 billion through a “financial crisis responsibility fee.” Oil and gas companies would see $46 billion in tax breaks vanish.
“It’s no surprise the administration is proposing yet again to raise taxes on the U.S. oil and natural gas industry,” Jack Gerard, president and chief executive of the American Petroleum Institute, said in a statement. “But it’s still a bad idea and comes at one of the worst times in our economic history.”
A new proposal would allow the government agency that guarantees corporate pensions for 44 million Americans to raise premiums to help plug its yawning deficit. The administration’s budget document said the proposal would raise $16 billion over the next decade — though that would still fall short of what the Pension Benefit Guaranty Corp. is expected to need.
The agency was established 37 years ago to ensure that workers who held pensions at troubled firms did not lose all their retirement income. The agency receives no taxpayer money and instead is funded by premiums charged to employers, the assets of pension funds they take over and investment returns. It insures pensions up to $54,000 a year for workers who retire at age 65.
The agency is facing a $23 billion deficit, which is the difference between the its $80 billion in assets and its liabilities.
In 2010, the agency paid about $5.6 billion in benefits to 801,000 employees whose companies could not cover their pensions. It is also responsible for future payments to 700,000 people who have yet to retire.
The PBGC’s load is increasing. Last year, it assumed responsibility for 109,000 more workers and retirees in 172 failed pension plans. Officials say that the agency has enough assets to pay pensioners for the foreseeable future but that the obligations could grow substantially in the coming years. Officials hope to raise new revenue to avoid the eventual need for a taxpayer bailout.
But in December, PBGC Director Joshua Gotbaum warned Congress that the agency’s future liabilities could be as high as $190 billion, as more companies suffer with shaky credit and other signs of financial stress.
Currently, Congress sets the premiums that the agency charges firms and has repeatedly raised these fees over the years.
The new proposal would not only give the authority to raise premiums to the agency’s board — which includes the secretaries of labor, commerce and the Treasury — but also to charge higher rates to firms whose pension funds pose the greatest risk of becoming insolvent.
“It is a fairer way to go,” Gotbaum said. “It would reward companies for posing less of a risk to their retirees.”