"5 Key Facts About The Obama Administration’s Corporate Tax Overhaul"
The Obama administration today is unveiling an overhaul of the corporate tax code, proposing to lower the top corporate income tax rate while eliminating a host of deductions and loopholes. The plan will be formally unveiled later today, but here are some of the important facts released already:
– The administration is proposing a top corporate income tax rate of 28 percent, lowered from its current 35 percent.
– The top tax rate for domestic manufacturers would be 25 percent.
– The plan would implement a minimum tax on overseas profits, as President Obama proposed in his most recent State of the Union address. The minimum tax would limit the ability of corporations to exploit low-tax havens like the Cayman Islands. The U.S. currently loses more to corporate profit shifting than it spends on several federal agencies.
– The plan would pay for the rate reduction by eliminating credits, loopholes, and deductions, including those for the oil and gas industries. Obama’s budget already proposed eliminating 12 tax breaks to oil, gas, and coal companies, saving $41 billion over 10 years.
– The plan would raise $200-$300 billion, depending on which baseline is used, as it would pay for the extension of a host of tax credits — such as the R&D tax credit — that are usually extended without pay-fors. As the Washington Post’s Ezra Klein explained, “their definition of revenue neutral is closer to what the corporate tax code actually says, but it’s about $200 billion above the Joint Tax Committee’s baseline.”
The U.S. already has the second lowest effective corporate tax rate in the world, and is raising historically low amounts of revenue from the corporate income tax. In fact, corporate tax revenue is at a 40 year low, according to the Congressional Budget Office, even though corporate profits have rebounded to their pre-recession heights. And the U.S. effective corporate tax rate is low compared to other developed economies, while U.S. corporations are taxed less than their foreign rivals, as these charts show:
However, despite these numbers, the plan does not aim for an increase in revenue, above that which would allow for the extension of some credits to be paid for. “Everyone agrees on the basic principle of lowering rates in exchange for eliminating loopholes,” said Dean Baker, co-director of the Center for Economic and Policy Research. “However, I think it is important that the target be some increase in tax revenue.” Otherwise, the burden of deficit reduction will fall upon middle-class and low-income Americans and the services upon which they depend.