Obama’s Corporate Tax Plan: Hurts Business in America

The President’s Corporate Tax Plan is reform that hurts free enterprise and entrepreneurship. The Plan proposes $250 billion in new taxes on business in America. The Plan moves drastically from the President’s promise of lowering the corporate tax rate to simply more international taxation.

The United States, at 35 percent has the highest federal government corporate tax rate of any advanced industrial economy. Bundled with an average 4.2 percent average state and local combined tax rate, the United States at 39.2 percent has a higher corporate tax rate by 15 percentage points versus the average of OECD countries. Lowering the corporate tax rate makes sense for America’s competitiveness.

Many of our competitors are lowering their rates this year, including Japan, the United Kingdom, and Canada. Since 2000, 27 industrialized countries have cut their corporate income tax rates. A 2008 study by the OECD found the corporate tax hurts economic growth and reduces living standards more than any other tax[1].

Unfortunately, the President’s Plan is bad economic policy, leaves small businesses out, and is more politics.

Bad Economic Policy

• The President’s Corporate Tax Plan is a net tax increase of $250 billion on America’s entrepreneurs. This revenue could have been spent to further lower the tax rate to be more internationally competitive.
• The 28 percent corporate tax rate does not go far enough and is out of line with our competitors. A 25 percent rate would begin to make American businesses more competitive and be in line with the OECD average rate.
• The President’s Plan calls for an unspecified new minimum international tax. It raises taxes by an amount to be determined on U.S. companies with overseas operations competing in a global marketplace. The President has adopted this new minimum international tax policy instead of a territorial tax system endorsed by his own Jobs Council and Fiscal Commission.

Leaves Small Businesses Out

• As many small businesses pay taxes through the individual tax structure, this reform would not help them. The Obama fiscal year 2013 budget would actually raise rates on individual small business tax filers up to a 39.6 percent rate. Under the Obama Plan, small businesses could pay 12 percentage points more in taxes than corporations in January 2013.
• The President’s Plan does not address broader, fundamental tax reform. Tax reform is difficult to do piecemeal. To prioritize corporate tax reform from broader, fundamental tax reform would put America’s small businesses at a disadvantage.
• Similar to the President’s “stimulus”, this plan continues the Administration’s pick of failed favorites like Solyndra by spending more hard earned taxpayer dollars on unproven renewable energy projects.

Politics, not Policy

• Despite years of talking about corporate tax reform, including in his 2011 State of the Union address, the President lowered the priority to an off-camera briefing by the Treasury secretary and two Treasury aides.
• The President’s Plan does not contain many details and does not have legislative language.
• The Plan re-hashes politically motivated tax increases like those on the energy industry and corporate jets.

Once again, the President is long on rhetoric and short on reality. Real, fundamental tax reform is what is needed. Not picking winners and losers and distorting investment using American taxpayer dollars. Tax reform coupled with regulatory reform will strengthen America’s businesses, particularly small businesses. The President said a year ago, “I proposed lowering the corporate tax rate and eliminating unnecessary regulations to help larger businesses create jobs.” (Cleveland, Ohio, February 22, 2011).

In a year’s time, he put forward a 25 page report outlining principles that the he would like to see. Much like the President’s proposals on the “Buffett Rule” and the President’s April 2011 deficit reduction speech, this is a broad outline with little details.

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[1] Jens Arnold, “Do Tax Structures Affect Aggregate Economic Growth? Empirical Evidence from a Panel of OECD Countries,” Organisation for Economic Co-operation and Development Economics Department Working Paper No. 643, October 14, 2008, p. 18.