Obama Offers to Cut Corporate Tax Rate to 28%
President Obama will ask Congress to scrub the corporate tax code of dozens of loopholes and subsidies to reduce the top rate to 28 percent, down from 35 percent, while giving preferences to manufacturers that would set their maximum effective rate at 25 percent, a senior administration official said on Tuesday.
Mr. Obama also would establish a minimum tax on multinational corporations’ foreign earnings, the official said, to discourage “accounting games to shift profits abroad” or actual relocation of production overseas.
With the framework for changes that the Treasury secretary, Timothy F. Geithner, will outline on Wednesday, Mr. Obama will enter an election-year debate with Republicans in Congress and in the presidential race who seek even lower taxes for businesses. But an overhaul of the corporate code is unlikely this year, given that political backdrop and the complexity of an undertaking that would generate a lobbying frenzy as businesses vie to defend old tax breaks or win new ones.
The announcement comes two days before Mitt Romney, a Republican candidate for president, is expected to expand on his economic platform in Detroit.
full: http://www.nytimes.com/2012/02/22/business/economy/obama-offers-to-cut-corporate-tax-rate-to-28.html?pagewanted=all
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stockholmer
(3,751 posts)http://www.brookings.edu/opinions/2011/0627_corporate_tax_holiday_gale_harris.aspx
Some observers are calling for a “repatriation holiday” on profits held by foreign subsidiaries. Some members of Congress, eager to stimulate our fragile economy, are listening. They shouldn’t. A tax holiday on repatriated funds is a proven failure — expensive in both direct and indirect ways. It was already tried in 2004 and didn’t work. A repatriation holiday would allow corporations to transfer profits from foreign subsidiaries to the U.S. parent company at a steep tax discount. Now, corporations can defer U.S. corporate tax on overseas income until profits are transferred back to the parent company. Repatriation could allow a large proportion of foreign profits — probably 85 percent — to be distributed tax-free to the U.S. This would essentially reduce the effective tax rate to just 5.25 percent from 35 percent. This sounds like it should be an effective strategy for jump-starting the economy. U.S. firms have roughly $1.5 trillion sitting on foreign balance sheets. In theory, that money could be put to productive uses in the U.S. economy.
But the idea is replete with problems. In many cases, these corporations have already accrued profits tax-free using techniques that shift reported income to tax havens like Bermuda or the infamous “Dutch sandwich,” which was used by Google to avoid an enormous amount of tax. Certainly, taxes ought to be paid at some point. In addition, firms are unlikely to invest the repatriated funds. Congress passed a similar repatriation tax holiday in 2004 and required firms to create domestic jobs or make new domestic investments to get the tax break. Nonetheless, the firms, on average, used the tax break to repurchase shares or pay dividends — not to increase investment.
The holiday, instead, turned into a massive tax break for shareholders — resulting in little or no economic gain or job market expansion. Why? Because money is fungible, to satisfy the requirements of the law, corporations reported repatriated funds as the source of money for investments or jobs they would have created anyway — and used other funds to increase shareholder wealth. Today, domestic firms are sitting on near-record levels of liquid assets. The reason they’re not investing or creating more jobs is not a cash shortage. Allowing them to repatriate foreign profits at low tax rates would only heap more cash onto their already huge stockpile.
There are also substantial costs associated with a repatriation holiday. First, allowing repatriation today means less taxable corporate profits in the future — which would translate into less government revenue. Second, and perhaps even more costly than the lost revenue, would be the dangerous precedent that firms would expect regular repatriation holidays. This expectation may persuade firms to hoard profits overseas and perhaps even move production abroad, betting that Congress will eventually grant another “one-time” tax break.
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Corporate Profits Repatriation, A Problem In Search Of A Solution
http://thinkprogress.org/yglesias/2011/10/10/340121/corporate-profits-repatriation-a-problem-in-search-of-a-solution/
Imagine a country. Poor but hardworking. It’s at or near full employment. Its workers aren’t the best educated in the world, but they’re better educated than the per capita GDP of the country would indicate. Unfortunately, their productivity is low despite a relatively solid education system because the workers lack access to capital and capital goods. They need to think of some way to inspire currency to flow in from outside in order to build their country up. You could imagine, say, post-Castro Cuba having the problem.
Just put a pin in that and ponder this email from MN:
I keep seeing proposals for a tax holiday to encourage the repatriation of profits held by foreign subsidiaries of American corps. The idea is that bringing the cash back would create economic activity. What about reversing the idea by creating a disincentive to keep the profits offshore in the first place? Probably would take a change to the tax code, but you could certainly offset any tax credits or deductions against those profits.
There are, indeed, perennially proposals from Democrats to try to tweak tax deductions so as to discourage firms from shifting capital out of the country. That’s fine as a revenue-raising idea. But it’s important to note that there’s no real need for an alternative to the repatriation proposal because the repatriation proposal is a solution to a non-problem. This is not post-Castro Cuba. The United States is not a capital-starved country. We’re actually attracting large ongoing capital inflows. The current income tax code is kind of a mess—high rates, tons of loopholes—so I understand that various firms would prefer not to need to pay it. But there’s no bona fide policy problem that this is solving.
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Report: Repatriation Tax Holiday a 'Failed' Policy
http://online.wsj.com/article/SB10001424052970203633104576623771022129888.html
WASHINGTON -- The 15 companies that benefited the most from a 2004 tax break for the return of their overseas profits cut more than 20,000 net jobs and decreased the pace of their research spending, according to report from the Democratic staff of the Senate Permanent Subcommittee on Investigations released Monday night. The report warned against repeating the tax break, calling the 2004 effort "a failed tax policy" that cost the U.S. Treasury $3.3 billion in estimated lost revenues over 10 years and led to U.S. companies directing more funds offshore. U.S.-based multinationals often defer bringing back profits earned abroad to avoid paying U.S. taxes on them.
The 15 companies that repatriated the most after the 2004 tax break on the return of overseas profits later cut a net 20,931 jobs between 2004 and 2007 and slightly decreased the pace of their spending on research and development, found the report surveying 19 companies' activity. When Congress passed the repatriation tax holiday in 2004, the legislation specified that the funds should be earmarked for activities like hiring workers or conducting research and prohibited using the money for executive compensation or buying back stock. Companies that brought back profits earned abroad saw them taxed at roughly 5%, instead of the top 35% corporate tax rate.
"There is no evidence that the previous repatriation tax giveaway put Americans to work, and substantial evidence that it instead grew executive paychecks, propped up stock prices, and drew more money and jobs offshore," Sen. Carl Levin (D., Mich.), chairman of the subcommittee, said in a statement Monday night. "Those who want a new corporate tax break claim it will help rebuild our economy, but the facts are lined up against them." The survey comes less than a week after Sens. John McCain (R., Ariz.) and Kay Hagan (D., N.C.) introduced a proposal for another repatriation tax holiday that would lower the tax rate on repatriated funds to 8.75%, with the opportunity to see that decrease to 5.25% if a company expanded its payroll. In the House, Rep. Kevin Brady (R., Texas) introduced a similar bill in May.
However, repeating the 2004 repatriation tax break has already come under criticism from skeptics, including the conservative think tank the Heritage Foundation, who have argued that companies aren't low on capital and the tax break won't nudge them into making any investments they wouldn't already make. The five companies that benefitted the most from the 2004 tax break included Pfizer Inc., Merck & Co., Hewlett-Packard Co., Johnson & Johnson and International Business Machines Corp., repatriating $88 billion, or 28% of the total amount brought back to the U.S., according to the report. In total, 843 companies brought back $312 billion, the Internal Revenue Service has assessed. The report noted that Pfizer had the single largest share of the repatriated profits, bringing home $35.5 billion in foreign earnings, while also cutting 11,748 U.S. jobs between 2004 and 2007. Similarly, IBM brought back $9.5 billion, but cut 12,830 jobs, the report stated, citing answers from the companies in response to its questions.
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Response to alp227 (Original post)
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cliffordu
(30,994 posts)or NAZI-ism or some stupid fucking thing and out themselves as bigger idiots than they already are...
SunSeeker
(51,557 posts)Hell, if all major corps paid even 20%, we'd be swimming in dough. But I like Obama's push to establish a minimum tax on multinational corporations’ foreign earnings--that would be huge, HUGE, as Trump would say.
abowsh
(45 posts)Our corporate tax rate is too high at 35%. Bill Clinton has advocated for lowering it into the teens. A key component of this cut is also eliminating the loopholes that allow certain businesses to have such low tax rates. If we can eliminate these holes (which usually go to preferred businesses and industries of congress), we should create a much more effective and understandable tax code.
snooper2
(30,151 posts)We would be rolling in fucking dough-
But will the execs just say, okay, more taxes and no more loopholes-
Cut med benefits, cut pay, cut worker bonuses, we keep our PAY!
abowsh
(45 posts)Our corporate tax rate is too high at 35%. Bill Clinton has advocated for lowering it into the teens. A key component of this cut is also eliminating the loopholes that allow certain businesses to have such low tax rates. If we can eliminate these holes (which usually go to preferred businesses and industries of congress), we should create a much more effective and understandable tax code.
does the Obama administration actually BELIEVE that any coproration pays 35%? 
stockholmer
(3,751 posts)It is all part of the corporatist fascist model. So many of us tend to look at the top of the pyramid, who write (via a bought and paid for Congress and revolving door lobbyists / department staff) laws and regulations designed to crush small and mid-sized firm-based competition.
What you have is an artificially constructed choice called either 'deregulation' by the so-called right-wing, OR 'government oversight' by the so-called left-wing. Both are false paradigms. The last thing the systemic controllers want is a 'level playing field'.
The problem with the US experiment is not big government per se, it is big government that has morphed in all areas over the last 100 years into nothing more than an enforcement mechanism for the systemic controllers. Agencies that should be for the public good are simple the tools of the elite designed to to crush all competition from small and mid-size firms.
This started in the USA during the so-called Progressive Era under Theodore Roosevelt, wherein huge monopolies like Standard Oil, etc, utilized a 'don't throw me in the briar patch' argument to get the force of government into regulating business practices (regulations that many times in the 100 years since that period they themselves have written). Far from creating a free market, this quashed their rivals in so many cases, and made it exceedingly hard for small entrepreneurs to compete.
The US Animal ID act is a perfect example, wherein a small sized chicken farmer has to pay exorbitant licensing fees per chicken, thus forcing them out of business, whilst monstrously huge consortiums like Tyson, etc, simply are allowed to buy one large bulk license that covers millions of birds.
I tend to agree with New Left historian Gabriel Kolko in his book "The Triumph of Conservatism: A Reinterpretation of American History, 1900-1916."
In it, he lays out a case for the rise of modern corporatist system during the Progressive Era. This in turn, allows for the violation a large principle – No socialization of losses and privatization of gains (ie the confluence of big business and big government in mutual reinforcement).
http://www.amazon.com/Triumph-Conservatism-Gabriel-Kolko/dp/0029166500
Kolko was soon joined by other New Left historians such as William Appleman Williams in challenging the reigning "corporate liberal" orthodoxy. Rather than "the people" being behind these "progressive reforms," it was the very elite business interests themselves responsible, in an attempt to cartelize, centralize and control what was impossible due to the dynamics of a competitive and decentralized economy.
.............in advancing the corporate liberalism idea whereby the old Progressive historiography of the "interests" versus the "people" was reinterpreted as a collaboration of interests aiming towards stabilizing competition . According to Grob and Billias, "Kolko believed that large-scale units turned to government regulation precisely because of their inefficiency" and that the "Progressive movement - far from being anti-business - was actually a movement that defined the general welfare in terms of the well-being of business" . Kolko, in particular, broke new ground with his critical history of the Progressive Era.
He discovered that free enterprise and competition were vibrant and expanding during the first two decades of the twentieth century; meanwhile, corporations reacted to the free market by turning to government to protect their inherent inefficiency from the discipline of market conditions. This behavior is known as corporatism, but Kolko dubbed it "political capitalism." Kolko's thesis "that businessmen favored government regulation because they feared competition and desired to forge a government-business coalition" is one that is echoed by many observers today . Former Harvard professor Paul H. Weaver uncovered the same inefficient and bureaucratic behavior from corporations during his stint at Ford Motor Corporation (see Weaver's The Suicidal Corporation <1988>
http://en.wikipedia.org/wiki/Gabriel_Kolko
http://users.crocker.com/~acacia/kolko.html
http://miltenoff.tripod.com/Kolko.html
http://www.stateofnature.org/liberalElitesAnd.html
Skittles
(153,160 posts)and they are the ones who will benefit yet again
http://adcontrarian.blogspot.com/2012/02/of-bozos-and-businesses.html
JJW
(1,416 posts)and then it becomes a personality contest.
PB
mmonk
(52,589 posts)Liberal_Stalwart71
(20,450 posts)Lowering the tax rate will help smaller businesses who don't have access to the tax loopholes that bigger corporations do, especially when they move their businesses offshore.
I think it's a very smart idea. Yeah, we'll lower your tax rate--even knowing that you don't pay it--but we'll also close those loopholes to make sure you pay much more than what you ARE paying!
Sounds good to me!!!
alp227
(32,025 posts)If so, Obama's proposal sounds similar.
Liberal_Stalwart71
(20,450 posts)weren't calling JFK the "antichrist" or a socialist for this is what's amazing.
lunatica
(53,410 posts)Obama proposes to lower corporate tax rates. Wha?! How can we say nooooo.....!!? Wait! Wha?
Earth_First
(14,910 posts)"But an overhaul of the corporate code is unlikely this year, given that political backdrop and the complexity of an undertaking that would generate a lobbying frenzy as businesses vie to defend old tax breaks or win new ones."
Translation: election year.
If we are effectively operating government under perpetual electioning, just *when* do we plan to address this...?
former9thward
(32,006 posts)Every year is either an election year or the 'year leading into an election'. It will be even worse at the end of this year. Assuming Obama is reelected both Rs and Ds will begin campaigning for November, 2016.
Lasher
(27,597 posts)If so, color me opposed.
Here's a related thread from a couple of weeks ago:
http://www.democraticunderground.com/101449467
Liberal_Stalwart71
(20,450 posts)Is this an action that Congress needs to take? If so, then were screwed. Until we can get an overwhelming majority of Democrats elected to the House, we will continue to be screwed.
Gringostan
(127 posts)28% is fine as long as you eliminate ALL loopholes; as well as tax credits.
semillama
(4,583 posts)It's due to the closing of loopholes, but that sounds fishy to me. Any of you financial-savvy folks have an idea of what he might be thinking of? Of course, he gets all his information from The Tax Foundation and similar groups.
grahamhgreen
(15,741 posts)
U4ikLefty
(4,012 posts)another hope & change moment.
BTW, closed loopholes my ass.
Robb
(39,665 posts)A tax on multinational corporations' foreign earnings (read: holdings) would net billions.
indypaul
(949 posts)From time to time we hear the lie repeated that corporations keep profits
off-shore in order to avoid paying U,S. taxes on their foreign profits, if
brought into the U.S. would subject them to double taxation. This is a
contrived lie and is repeated over and over. Any foreign income taxes paid
can be taken as either a deduction against that income or a dollar for dollar
credit against any U.S. Income tax. The truth seems to be they wish to
avoid paying a tax in any form on these profits. Don't swallw the B.S.
OWS is rigjt. "I'll believe corporations are people, when Texas executes one."
Bruce Wayne
(692 posts)But let's wait to see which loopholes he wants to cut, first.
