The Treasury Department unveiled today President Obama’s plan to reduce the corporate tax rate.
In its broadest strokes, the plan would shave seven points off the nominal rate businesses pay, lowering the tax from 35 percent to 28 percent – adding kickers that reduce the rate further for domestic manufacturers to 25 percent.
There is some logic for corporate tax “reform.” Nominally, the U.S. has one of the highest corporate tax rates in the developed world. The trouble is that only a very few companies pay anything near the 35 percent rate. The current system effectively punishes, with a very high tax rate, companies whose brick-and-mortar operations can’t be offshored, while providing powerful incentives to other businesses to use complicated tax transfers and phony island headquarters to reduce and eliminate their U.S. tax burden (some profitable companies – GE is one – even receive rebates), and book profits offshore, shielded from the IRS until such time as corporations decide to bring them home. (And even that’s in doubt: Corporate America now has well over $1 trillion in untaxed profits stashed abroad, and companies from Apple to Pfizer to Exxon have been lobbying hard for a tax holiday that would allow them ship the cash back to the states while paying something laughable like 5 percent in taxes. A discount of 30 points.)
The Obama tax overhaul is intended to be “revenue neutral,” meaning the new system will take in as much as the one it’s replacing, but no more. This is a timid choice, to put it kindly, given that corporate profits are soaring, the federal government faces staggering deficits, and rampant corporate tax evasion has reduced the effective rate corporations pay on their profits to something less than Mitt Romney’s rate of 13 percent.
“The corporate tax reform ‘framework’ released by the Obama administration today fails to raise revenue that could be used to make public investments in America’s economy and America’s future,” said Bob McIntyre, who heads Citizens for Tax Justice. “We can and should collect more tax revenue from corporations.”
The price tag of reducing the nominal corporate rate is $1.2 trillion over 10 years. Obama plans to pay for package in two ways:
1) By eliminating wasteful subsidies for oil and gas companies among others.
2) By implementing a new minimum tax on the “foreign” earnings of U.S. companies (Again, many of these billions are domestic profits that get offshored through abusive accounting practices.)
In theory, this second step might represent a bold proposal.
Creating a minimum tax on foreign profits would limit the incentives for offshoring both jobs and corporate earnings. But how much is that minimum tax? Here’s the very strange part: The administration refuses to say.
In a conference call this morning, Treasury secretary Tim Geithner inartfully dodged the question when asked directly. Rolling Stone, not finding any mention of a specific minimum rate in the president’s plan, called Treasury for guidance.
Short answer: Silence. Treasury will provide no information on the proposed minimum tax other than that one has been proposed.
Not a rate. Not a range. Not a targeted revenue figure. Nada.
The devil is in the details, my friends. And right now, Satan’s having a field day.