Obama Corporate Tax Proposal Draws GOP Fire

February 23rd, 2012
in econ_news

Econintersect:  The Obama administration has announced a five point corporate tax reform plan that would reduce the top rate from 35% to 28%, tax-cutSMALLwith lower top rates for certain businesses.  The White House claims the proposal would move the U.S. closer to a competitive corporate tax posture compared to the rest of the world.  Critics have said that closer is not good enough, but that the top rate should be dropped to 25% which is the average for countries in the OECD (Organization for Economic Co-operation and Development).  Some have called for the rates to be cut far below 25%.  If the U.S. does not take action the country will be the developed country with the highest corporate income tax rate in the world as Japan has dropped its top rate to 30% effective in April.

Follow up:

The five points of the plan:

  • Cut the top bracket from 35% to 28%.
  • Make the top rate 25% for domestic manufacturers.
  • Make the effective top rate 25% for companies that implement clean energy systems.
  • Implement a lower minimum tax rate for overseas earnings.
  • Remove loop holes that have resulted in some corporations paying little or no income tax.

A lengthy summary of negative Republican reactions to the proposed tax plan can be read at The Blaze in an article entitled “President’s Proposed Corporate Tax Cut Called A ‘Disaster’…’Total Bust’

Janet Novack (Forbes) points out that a number of countries have lower corporate income taxes offset by a value added tax (VAT), which adds taxes at every stage of production based upon the value added in that stage.  A simple way of thinking of this tax is that it is a production and wholesale tax (compared to a retail sales tax).  Novack says the in the U.S. a VAT is viewed as political poison by both parties so this would not be on the table as a possible source of revenue to make up for reduced corporate income tax revenues.


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