It’s yet another example of something that most lawmakers agree on yet it most likely will not get done. Washington gridlock is alive and well even when there is no disagreement on the core issue.
That is the main problem with the corporate tax.
Currently, American corporations pay a 35% tax rate, higher than any other advanced country and most lawmakers, tax experts and, of course, corporate CEOs believe that this is too high.
Because of that, President Obama proposed lowering the tax rate to 28% in an attempt to make America a more corporate friendly place to do business.
The chances of this issue gaining enough traction to get through Congress is essentially none.
Paper Vs. Reality
Although the corporate tax rate is 35% on paper, the complicated system of deductions and credits make the realistic rate that most companies pay somewhere around 18% with many corporations paying even less than that.
Although Obama wants to lower the tax rate to 28%, he also wants to do away with many of the deductions and credits making the tax rate, in reality, higher for many businesses. He also wants to impose a minimum tax on money earned outside of the United States effectively ending a loophole that allows corporations to keep foreign earnings off of American soil.
Tax experts believe that getting rid of the loopholes, exemptions, and deductions wouldn’t cost companies as much as they might think.
Because they spend a lot of time and incur a lot of expense trying to plan for and navigate the complicated tax code, removing the complications would also eliminate much of expense. Companies could easily plan for the tax liability and set prices accordingly, but that doesn’t have everybody convinced.
The largest of the uphill battles may be the fact that it’s an election year.
Politicians know that taking on the corporate tax rate also involves taking on a large contingent of corporate lobbyists, which have traditionally caused lawmakers to quickly back down from those plans. The pressure will be even higher in an election year, something that the Obama Administration may be counting on as they propose common sense style reform design to get the attention of voters.
One piece of the proposed legislation that is getting a lot of criticism is the even lower rate for manufacturing companies.
In an attempt to keep jobs in America, Obama wants to have an even lower rate for companies like Boeing that manufacture products in America. Opponents of this piece of the legislation argue that companies like Boeing already pay next to no corporate tax so lowering their rate won’t change anything. Some believe that it would be better if their tax rates went up.
The main problem, according to some, is that lowering the tax for manufacturers is much like picking a winner among corporations.
Most insiders give the corporate tax legislation little to no chance of making it through Congress but the fact that the administration acknowledged that the corporate rate is too high and the tax code too complicated is a step towards real reform…just not this year.
What do you think of Obama’s proposed corporate tax reform? What do you think would work?
Obama Unveils Proposal to Cut Corporate Tax Rate – NY Times
Corporate Tax Rates Effectively Already Below Obama’s Proposed Level – Huffington Post
Obama’s Corporate Tax Cut Plan Faces Uphill Battle – NPR