“It’s not right and it needs to change,” he said.
Although most analysts agree that the corporate tax rate is too high, and that there are far too many loopholes, many disagree with the White House’s proposal.
The president said that he wants to lower the corporate tax rate from its current rate of 35 percent, the highest in the world after Japan, to 28 percent — 3 percent higher than the rate sought by congressional Republicans. He also said that manufacturers would “receive incentives so that their effective tax rate could be even lower,” according to the AP.
“It’s a framework that lowers the corporate tax rate and broadens the tax base in order to increase competitiveness for companies across the nation,” the president said in a statement.
Under the proposed plan, corporations with overseas operations would also face an unspecified minimum tax on their foreign earnings.
Geithner also told a Senate committee that “dozens and dozens” of tax loopholes were being targeted for closure, although incentives for “creating and building stuff in the United States” would remain.
“Some will say these proposals are too tough on business, and others will say that they’re not tough enough,” Geithner said.
The president’s proposed plan is the next step in his effort to raise taxes on “millionaires and billionaires” while somehow maintaining current rates on individuals making $200,000 or less.
Republican reaction was less than enthusiastic.
Rep. Dave Camp (R-MI), Chairman of the House Ways and Means Committee, said he “appreciated” the administration’s plan, though it set a corporate tax rate that is — as mentioned in the above — still higher than the Republican proposal of 25 percent. He faulted Obama, however, for not offering a wholesale overhaul of the entire tax system for businesses and individuals.
“While this is a good step by the administration, I will borrow from the president’s own words to Congress from just yesterday: ‘Don’t stop here. Keep going,’” Camp said in a statement.
Sen. Orrin Hatch (R-UT), wasn’t as kind in his criticism. The top Republican on the Senate Finance Committee dismissed the president’s plan as a “set of bullet points designed more for the campaign trail than an actual blueprint for fixing our tax code.”
An administration official promised the plan would not “add a dime to the deficit,” which would mean that some companies could benefit from the changes while others would find themselves paying for them, Wall St. Cheat Sheet reports.
In fact, many businesses that slip through loopholes or enjoy subsidies and pay an effective tax rate that is substantially less than the 35 percent corporate tax could end up paying more under the president’s plan.
It’s worth noting that reducing the corporate tax rate from 35 percent to 28 percent would reduce tax revenues by about $700 billion over the next decade, according to an estimate prepared in October by the Joint Committee on Taxation.
“That means lawmakers would have to find about $70 billion a year in tax increases to keep the package from adding to the budget deficit [emphasis added],” the AP reports.
Well, that’s — um — great news. What tax increases are we talking about here?
Conservative talk radio host Rush Limbaugh explains:
Obama…has announced what he’s claiming to be is a corporate tax cut. His corporate tax cut will actually raise taxes on businesses by $250 billion. He’s cutting the rate to 28 percent but he’s making other changes that will actually result in businesses paying more money.
Limbaugh went on to cite a recent Wall Street Journal report:
“President Obama’s 2013 budget is the gift that keeps on giving—to government. One buried surprise is his proposal to triple the tax rate on corporate dividends, which believe it or not is higher than in his previous budgets.”
“Mr. Obama is proposing to raise the dividend tax rate to the higher personal income tax rate of 39.6 percent that will kick in next year. Add in the planned phase-out of deductions and exemptions, and the rate hits 41 percent. Then add the 3.8 percent investment tax surcharge in Obamacare, and the new dividend tax rate in 2013 would be 44.8 percent…”
You know what it is today? Fifteen.
Next year, if Obama’s budget were adopted and coupled with what happens with Obamacare, the dividend tax rate will jump to almost 45 percent.
Indeed, with rates that high it will more than make up for the tax revenue lost with the president’s supposed tax “cut.”
Geithner claimed that the president’s plan aims to “help U.S. businesses,” especially manufacturers who face strong international competition.
“Obama’s plan would lower the effective rate for manufacturers to 25 percent by offering other tax incentives that emphasize development of clean energy systems [emphasis added],” the AP reports.
Ah! There it is.
It should also be pointed out that although the president has been promoting various aspects of his economic agenda in personal appearances and speeches, he decided to leave the unveiling of his corporate tax plan to the Treasury Department.
Unsurprisingly, this has some critics claiming that the president isn’t entirely serious about real fiscal responsibility.
“For the second straight year, Obama has launched a major proposal while deliberately disregarding his own advisory panel’s recommendations,” writes Ed Morrissey of Hot Air.
Now his new corporate tax proposal ignores the recommendations from the panel Obama created to much fanfare last year as part of his focus on job creation and economic growth. The obvious conclusion is that Obama has prioritized punitive tax changes on American business in order to fund his spending expansion over economic growth. Republicans need to emphasize that Obama’s job council turned out to be nothing more than a smoke screen, just the same as Simpson-Bowles, and that this corporate tax “reform” is anything but.
Over at the Washington Examiner, Conn Carroll had stronger words for the president’:
Tax reform is boring and complicated, so I’ll summarize the corporate tax plan Treasury Secretary Tim Geithner released earlier today by quoting President Obama: We’re gonna punish our enemies and we’re gonna reward our friends.
What does he mean by that?
Carroll begins by citing Page 4 of The President’s Framework for Business Tax Reform, which reads: “Currently, tax expenditures in the tax code vary dramatically by industry. … The result is a tax system that distorts investment decisions. By allocating capital inefficiently, this system lowers living standards now and could impede technological innovation.”
No argument there. As Carroll notes, the wise thing to do would be to close said loopholes and lower the corporate tax rate.
Seems like a good idea, right? Try telling that to the White House economic team.
“Instead, [the president] identifies industries he doesn’t like (e.g. ‘oil and gas’ ‘insurance industry’ ‘aircraft’) and takes away their loopholes, but leaves other industries alone,” Carroll writes. “This selective enforcement of tax simplification would be bad enough by itself, but then Obama makes it far worse by expanding other loopholes and creating brand new ones.”
And that’s not all.
“Obama also ‘Extends, consolidates, and enhances key tax incentives to encourage investment in clean energy,’” Carroll writes. “This will all be a boon for K Street as they fight to make sure their business qualifies as either a manufacturer, clean energy firm, or (like Solydra) possibly both!”
Echoing these sentiments, James Pethokoukis of the American Enterprise Institute called the president’s plan “a total bust.”
“President Barack Obama…has the temerity to propose a corporate tax reform plan that would actually raise the tax burden on American business by $250 billion over a decade (and de facto on workers, too) without lowering rates to an internationally competitive level,” Pethokoukis writes, adding that it’s a “terrible, terrible plan.”
Well, for starters, and as mentioned in the above, the president’s proposal would establish “a minimum tax” on multinational corporations’ foreign earnings.
“So instead of a carrot, Corporate America gets the stick. Instead of lowering the U.S. rate to a competitive level, Obama would raise the penalty on keeping profits overseas,” Pethokoukis writes. “Indeed, the United States is a huge outlier in that it taxes the foreign profits of multinational companies.”
But wait! There’s more!
Pethokoukis adds that, after state taxes, there is no way the effective manufacturing tax rate will stay at 25 percent. Furthermore, the president’s plan will waste scarce resources on “clean energy” subsidies.
“Obama had no experience in the private sector before becoming president. The free market is a sort of theoretical construct he learned about in college. But Geithner should know better,” Pethokoukis writes.
“He’s had lots of contact with all sorts of executives, both at Treasury and when he ran the New York Federal Reserve Bank. If he has any doubts about this plan, he should resign. And if he doesn’t, he never should have gotten the job in the first place,” he adds.
Of course, as mentioned earlier on The Blaze, there’s always the possibility that Geithner is well aware the plan is “a total bust” — he just doesn’t care.