CQ TODAY ONLINE NEWS
Jan. 25, 2012 – 2:33 p.m.
Obama to Push Corporate Tax Plan
By Sam Goldfarb, CQ Staff
President Obama plans to propose the framework for an overhaul of the corporate tax system next month, White House officials said Wednesday, providing a broader context for specific tax proposals he discussed in his State of the Union address this week.
Release of Obama’s corporate tax plan, in the works for about a year, has been repeatedly delayed as administration officials sought to maximize its political impact and minimize potential damage.
In his 2011 State of the Union address, Obama said he wanted to simplify the corporate tax system by broadening the base of taxable income and reducing the tax rate. Striking a more populist tone in his speech Jan. 24, Obama only obliquely referred to his broader corporate tax goals. Instead, he focused on new proposals that he said would spur domestic manufacturing, including a credit for companies that move their operations from overseas locations to the United States.
On a conference call Wednesday, administration officials offered few details about Obama’s corporate tax plan. Jason Furman, principal deputy director of the president’s National Economic Council, said the proposal to be announced next month would involve “simplifying the tax code, closing loopholes” and “broadening the base.”
In addition, Furman said the administration wants a minimum tax levied on profits that companies earn overseas. Resulting revenue would be used to “cut taxes here in the United States,” he said.
The plan will also include a permanent extension of the popular research and experimentation tax credit, which has typically been renewed year to year.
Although an exact release date has not been determined, a discussion draft will be made available around the same time as the president’s fiscal 2013 budget request, which is expected on Feb. 13, National Economic Council Director Gene B. Sperling said.
A Shift in Strategy
The administration’s corporate tax plan — and its link to proposals outlined in Obama’s address — may not break a partisan logjam on tax policy in Congress.
On Jan. 24, House Ways and Means Chairman
And Democrats used the opportunity to say they were seizing the moment. “If you’re wondering what our agenda will be this year, you pretty much heard it last night,” Sen.
Obama is just the latest president to offer a blueprint for a corporate tax overhaul. President George W. Bush tried a similar idea in 2007, and the administration of his father, President George Bush, detailed particularly ambitious ideas in 1992.
Many U.S. corporations have been agitating for a tax overhaul, in part because of the relatively high rate paid on U.S. income and because the tax code is replete with special benefits that are not available to all corporations.
Obama to Push Corporate Tax Plan
At 35 percent, the United States has a much higher corporate tax rate than most of its trading partners. At the same time, the effective rate that companies pay after claiming various tax benefits can be considerably lower.
Obama’s decision to press ahead with the corporate tax overhaul project comes as something of a surprise, considering his recent shift in political strategy. After pushing centrist policies for much of 2011, Obama pivoted toward the end of the year in an attempt to draw starker contrasts with Republicans ahead of the 2012 election.
Changing the corporate tax structure would not necessarily seem to fit into that new strategy.
Once billed as an olive branch to the business community, the list of corporate tax proposals might now be framed differently, however. To the extent that the White House officials want to publicize it at all, they appear most interested in emphasizing specific aspects — such as the tax increase on multinational companies — that fit into Obama’s larger theme of “tax fairness.”
Still, given the political climate, the chances that Republican leaders will embrace any proposal from the White House are slim.
Focus on Manufacturing
Currently, multinational corporations pay tax on income that they earn in other countries only when that money is transferred home in the form of dividends. Deferral, the practice of leaving foreign-source income overseas, can limit a company’s tax liability indefinitely.
As a result, Obama has frequently argued, as he did this week, that such companies are rewarded for “moving jobs and profits overseas.”
Despite his rhetoric, Obama has never endorsed ending foreign tax deferral. Instead, he has proposed various methods of discouraging companies from outsourcing jobs. Now, he wants Congress to consider a few new ideas.
Obama, for instance, has previously argued that companies should be prevented from deducting interest expenses associated with business profits that are kept in other countries.
Among the new proposals outlined Wednesday is one that would stop companies from deducting expenses that stem from moving business operations offshore. Revenue raised from that proposal would be used to offset the cost of a 20 percent tax credit for companies that bring jobs back into the United States, officials said.
In addition, Obama is pushing a new “manufacturing communities tax credit” for qualified investments in cities and towns that lose jobs because of globalization. That tax credit is expected to cost the government $6 billion over 10 years.
To further encourage domestic manufacturing, Obama would extend temporary renewable-energy tax credits at a cost of $5 billion over 10 years. He would also prevent oil companies from claiming an existing manufacturing deduction, while increasing the value of the deduction for high-technology companies and other types of businesses.
Obama to Push Corporate Tax Plan
With an eye toward his re-election campaign, Obama has sounded hopeful notes about the economy in recent weeks and called attention to employment gains in manufacturing, which administration officials say is important for the economy and worth nurturing with targeted policies.
Campaigning in Iowa on Wednesday, Obama repeated his message from the day before that Congress should move quickly to pass his new manufacturing incentives. “You need to tell Congress to send me this tax reform plan,” he said. “We need to make it easier for American businesses to do business here in America.”