After several years of offering oblique generalities about the need to lower the corporate tax, Obama is finally putting his money where his mouth is. Last week, Congressman Dave Camp called out Timothy Geithner for not offering a corporate tax cut in the President’s FY 2013 budget. So with much fanfare, Geithner has unveiled a proposal to cut the top corporate tax rate from 35% to 28%.
So is Obama a born-again supply side tax cutter? Not by a long shot.
Here are the facts.
- Let’s remember that 28% is still higher than the average rate among industrialized countries, even among European countries. As AEI’s Alex Brill observes, Obama’s proposal would take our corporate tax rate from last place (34th) to 32nd place.
There had been a bipartisan consensus to lower the rate to 25%, in line with the OECD average. Moreover, when coupled with state corporate taxes, which don’t exist in most other countries, the corporate tax rate may still be over 35% in many localities.
- Like with all Obama tax cuts, there are sundry tax increases included in the plan, totaling $250 billion. Obama would require U.S. companies operating overseas to pay a new minimum tax rate on their foreign earnings. Instead of following a bipartisan plan to encourage businesses to bring their profits home through a one-time repatriation holiday, he is using the boot of government to punish them. Obama also plans to eliminate a lot of deductions for oil and gas companies, such as expensing on drilling investments and depletion of wells. These are not loopholes; they are universal investment deductions that factor in the cost of doing business. Those costs will be passed down to the consumer if this plan passes.
While we all want a lower flatter tax, this plan does not lower the marginal rates enough to warrant the elimination of these deductions. Moreover, if you’re going to eliminate credits and deductions for those companies that pay millions in taxes, why not eliminate them for every business, including green energy firms that pay no taxes to begin with? Yet, Obama plans to renew the Production Tax Credit handout for Big Wind, a credit that is unfortunately supported by some Republicans.
- Any benefits that would be actualized as a result of the corporate tax cut would be vitiated by Obama’s triple taxation of corporate dividends. As the WSJ points out, under Obama’s 2013 budget, the corporate dividends tax rate would rise from 15% to 44.8% next year.