AP: "To Close Tax Loopholes, Obama Would Open New Ones"

The AP writes today, “Cutting corporate tax rates and deleting loopholes is just what most economists prescribe for the tangled U.S. tax code. So why isn't everyone cheering the plan President Barack Obama unveiled Tuesday to slash the top corporate tax rate and end breaks that let some companies pay little or nothing in taxes? Economists note that Obama's plan would upturn the very playing field the administration says it wants to level.”

Indeed, the story notes Obama’s plan “would give manufacturers preferential treatment: Tax breaks would effectively cap their rate at 25 percent. Other companies would pay up to 28% . . . . Some say such varying rates can distort the economy by diverting investment into some industries and away from others that might pack a bigger economic punch. ‘The administration is not making sense,’ says Martin Sullivan, contributing editor at publisher Tax Analysts. ‘The whole idea of corporate tax reform is to get rid of loopholes, and this plan is adding loopholes back in.’”

Interestingly, the piece points out, “Among the skeptics is Obama's own former economic adviser, Christina Romer, an economics professor at the University of California, Berkeley. In a column this month in The New York Times, Romer argued that there was no economic justification for the government to favor manufacturers over service-oriented companies.

‘Our earnings from exporting architectural plans for a building in Shanghai are as real as those from exporting cars to Canada,’ Romer wrote.”

Meanwhile, the AP writes, “Other economists oppose a separate plank of the Obama plan: a minimum tax on foreign earnings of U.S. multinational companies. No other country imposes such a tax on its companies, they note. U.S. businesses would face a competitive disadvantage. . . . ‘No other developed country imposes such a 'minimum tax' on the foreign earnings of their corporations,’ said the Business Roundtable, a trade group of chief executives of large U.S. companies. Some economists agree. The minimum tax proposal for international earnings ‘is totally misguided both from a competitive standpoint and a jobs standpoint,’ said Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics. ‘Obama's plan, if enacted, will shrink the U.S. footprint in world markets and lose jobs.’”

On top of all these questions about the policy itself are indications that the Obama administration isn’t even that serious about getting these policies approved. The New York Times notes, “The White House provided few details on Wednesday, and most concerned the proposed reductions rather than the offsetting increases, thwarting detailed analysis. The administration introduced its overhauls of financial regulation and health care in the same way. But the high-concept approach also reflects that Wednesday’s announcement was a campaign event.” And yesterday, the AP wrote, “While Obama has been promoting various aspects of his economic agenda in personal appearances and speeches, the decision to leave the corporate tax plan to the Treasury Department to unveil signaled its lower priority.” Reuters added, “For now, [analysts] said, tax proposals will largely amount to political messaging.”

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