In a speech Tuesday pressing for Congress to invest in jobs programs that target the middle class, President Obama will propose changes to the corporate tax code to fund those investments. The proposal will also feature some form of a fee on offshored corporate cash, Bloomberg reports.
Details of Tuesday’s speech aren’t yet clear, but the reforms Obama has proposed in the past differ significantly from the reform scheme pushed by a coalition of major businesses. Under a 2012 Obama proposal, the corporate rate would fall from 35 percent to 28 percent, or 25 percent for manufacturers, a variety of tax breaks would end, and changes would be made to how corporations calculate tax deductions. Depending on the specifics, such reform could either be revenue-neutral or produce a substantial increase in business tax collections. Reuters notes that even a revenue-neutral set of reforms would produce a temporary boost in tax receipts, and Obama’s desire to invest that initial increase in revenue could meet resistance in the House.
Part of that short-term boost would come from charges against offshore profits. Tech giants like Apple and Google use international subsidiaries to avoid U.S. taxes. Such schemes cost the country billions — over $1,000 per person, factoring in tax evasion by wealthy individuals — but are usually legal under the current business tax code.
On paper, the corporate tax rate is 35 percent. But loopholes in the code allow corporations to pay a lower rate than middle-class Americans – just 12.6 percent in 2010. Wiping the slate of such “tax expenditures” could produce a lot of revenue, as the Center for American Progress’ Kitty Richards noted recently.
The corporate wishlist includes revenue-neutral tax reform, meaning that the changes wouldn’t bring in any more money for the government over the long term. Congressional Republicans also support revenue-neutral reform.
While there is no evidence that lower corporate tax rates are connected to greater economic growth, the White House hopes reform that raises revenues would fund things like the $50 billion in infrastructure spending Obama has proposed in the past. Such investments would partially counteract the rapid austerity imposed by sequestration, which is undermining economic growth.
The White House press office emailed a fact sheet on the president’s proposals to reporters Tuesday morning. The speech will call for revenue-neutral reform with a maximum corporate tax rate of 28 percent — 25 percent for manufacturing — and “a minimum tax rate on foreign earnings.” The latter idea contrasts with Republican efforts to ease or even eliminate taxes on overseas business income.