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Published: Sunday, 2/26/2012

Editorial

Obama's tax plan

President Obama's new proposal for corporate tax reform has good bones. But even if Republican lawmakers were prepared to give it a fair hearing, which is doubtful, the plan risks giving away too much to business at the expense of urgent national needs.

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The proposal is based on a valid principle: Reduce business tax rates and broaden the tax base by closing unproductive loopholes and ending wasteful subsidies. The President would cut the top corporate tax rate from 35 percent to 28 percent, bringing it close to the average rate in the nations with which America competes most closely. The top rate for manufacturers would fall to 25 percent.

At the same time, Mr. Obama would eliminate a broad range of tax breaks. He proposes a minimum tax on foreign earnings to prevent U.S. corporations from sheltering profits by assigning them to operations in other countries where tax rates are lower. Unnecessary federal subsidies for such things as corporate jets and oil and natural-gas exploration would be gone.

Yet while the President says he expects his proposal to be "revenue neutral," it isn't clear that the loophole-closing measures he proposes would raise enough money to offset the revenue loss from cutting the tax rate. The administration says it is looking at other reforms that would raise more revenue -- and would be resisted even more vehemently by business lobbies -- but isn't committing to them.

That raises the prospect that the White House plan could increase the deficit or force the nation to skimp on needed federal investment in such things as public education, health care, and infrastructure repair. Such an outcome would contradict the vital agenda the President has articulated.

Former U.S. Labor Secretary Robert Reich notes that corporate federal tax payments as a percentage of profits are at their lowest level in four decades. He adds that corporate taxes now account for 10 percent of total federal tax revenues -- down from 32 percent in 1953, when Republican Dwight Eisenhower was president. So the option of expecting business to pay more, within the context of overall tax reform, should not be off the table.

Republican legislative leaders and presidential candidates are all for cutting the corporate tax rate as the President advocates, and demand even lower rates. But they don't identify which tax breaks, if any, they are prepared to eliminate in return.

Many of them argue that closing loopholes is the equivalent of raising taxes -- a position supported by the Washington lobbyists who zealously protect those generous breaks for their corporate clients. In some cases, GOP lawmakers even would provide new opportunities for corporate tax avoidance.

America surely needs a simpler, more competitive, more efficient system of taxing corporations, to enable businesses to plan more effectively. But the system also needs to treat all industries and companies equitably, and to raise tax revenue from business in a way that also is fair to individual taxpayers and adequately addresses national priorities.

President Obama's proposal offers a good foundation, but no more than that, for beginning the debate on corporate tax reform. A comprehensive tax plan will need more balance, and much greater detail.



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