Despite the inklings of detente just a few days ago, President Obama and House Speaker John Boehner still haven't been able to end their standoff on taxes: Boehner's latest plan proposed to permanently extend Bush tax cuts for the wealthiest 2 percent, my colleagues report. Republicans say their position is unchanged, but if the charge is correct, then Boehner is drawing a harder line than before, insisting that Democrats cave on their key priority.
That said, it's becoming clearer that there is one thing that both the White House and Republicans seem ready and willing to put in motion through a big "fiscal cliff" deal: Lower corporate tax rates through overhauling the entire code.
In the most recent negotiations this week, the White House has offered to include corporate tax overhaul as part of a big deal on the fiscal cliff, The Wall Street Journal reports. "Officials cited a corporate-tax plan the administration unveiled in February but said they weren't wedded to any specifics," the Journal wrote.
The administration's February plan proposed to reduce the corporate tax rate from 35 percent to 28 percent, eliminate specific corporate loopholes and deductions, and create a new "global minimum tax" to keep multinationals from shifting profits abroad. House Republicans, for their part, have similarly proposed lowering the corporate rate, which they want to reduce to 25 percent. By contrast, they want to eliminate taxes on foreign income altogether, transitioning to what's known as a territorial tax system.
Allies say the administration's corporate tax reform offer is "a reasonable move by the White House to give Republicans something they've been calling for for a long time, which is a lower corporate tax rate," says Jared Bernstein, former economic adviser to Vice President Biden. "Perhaps in that regard it's a deal-sweetener."
Republicans, however, dismissed the notion that the White House was making any kind of concession on taxes, or that their offer to do corporate tax reform was anything new. After all, there's long been bipartisan consensus that the corporate tax code is a mess. And though the fiscal cliff itself doesn't affect the corporate tax code, many observers have assumed that some framework for a corporate tax overhaul in 2013 would be attached to a fiscal cliff deal.
“We don't make it a habit to comment on 10-month old news," said a GOP spokesperson for House Ways and Means Committee chair Dave Camp (R-Mich.), while stressing Camp's commitment to "comprehensive tax reform that impacts both large corporations and small businesses."
Boehner spokesman Michael Steel was similarly dismissive, calling news of the White House's corporate tax reform offer "a red herring," the National Journal notes. "We've always said you need to do both, given the way they interact."
Business leaders have long pushed for a corporate tax overhaul, and the White House's new, explicit offer to put corporate reform in a deal could help them appeal to industry leaders who've been very visible in the debate.
But there's also some concern from industry lobbyists that the issue could become a political football if Democrats try to use it as a negotiating chip on the individual tax rates rather than a point of consensus. I think that "Individual and corporate taxes are two very different issues — keeping them separate helps avoid confusion," says Scott Talbott, senior vice president of the Financial Services Roundtable.
One thing remains clear, however: the kind of corporate tax overhaul that both Obama and Republicans have offered aims to be revenue-neutral, offsetting rate increases by closing loopholes and expenditures. So the one big tax reform that both sides can agree on isn't going to do a thing to reduce the deficit.
Thursday's top 5 fiscal cliff reads:
1) How Medicaid dodged the deficit debate: "On Monday, the Obama administration quietly reversed its support for a policy that would cut billions in Medicaid funding. For health care advocates, the small move reaffirmed a big message already delivered by White House staff: Medicaid is largely off the table in deficit reduction negotiations." The Washington Post
2) The mood on Capitol Hill has turned glum: "Democrats also sounded less hopeful Wednesday of striking a deal by Christmas. Rep. Chris Van Hollen (D-Md.) said both sides need to craft the framework of a deal by the end of this week to ensure its passage by Christmas." The Washington Post
3) Bernanke: No, we can't save you from the fiscal cliff. "Mr. Bernanke said that while the Fed could increase asset purchases 'a bit,' it can’t offset fully the effects through added stimulus. Worries about the fiscal cliff–set to kick in early next year if law makers don’t find a solution–is already affecting business investment and hiring, he said." The Wall Street Journal
4) Some billionaires are insisting that estate taxes go up, too: "Billionaire investors Warren Buffett and George Soros are calling on Congress to increase the estate tax as lawmakers near a decision on tax policies that expire Dec. 31". Bloomberg
5) Ordinary millionaires are freaked out that they'll succeed: "These are hectic days for trusts and estates lawyers, as they make house calls, work nights and fly overseas to meet rich clients before Bush era tax cuts expire...Unless Congress and President Barack Obama decide otherwise, top rates for estate and gift taxes will rise to 55 percent from 35 percent on Jan. 1, with lifetime exemptions falling to $1 million per person from $5.12 million." Bloomberg