Issue of the week: Obama’s corporate tax reform

“Outdated, unfair, and inefficient.” That’s how President Obama described the current corporate tax code last week as he proposed to overhaul it, said Jim Puzzanghera and Kathleen Hennessey in the Los Angeles Times. He wants to lower corporations’ tax rate from 35 percent to 28 percent and close many of the loopholes that allow companies to pay far less than the full rate. His plan wouldn’t increase the deficit, he said, since eliminating tax breaks and levying a new tax on foreign earnings would offset the lower overall rate.

The president is “spot on” with his diagnosis of our flawed corporate tax code, said Howard Gleckman in CSMonitor​.com. But “his proposed cures may make the disease worse.” In one breath, he criticizes tax laws that favor certain businesses, such as hedge funds and the oil and gas industry. Then he turns around and proposes “a more generous 25 percent rate” just for manufacturers. Huh? Didn’t he just say it’s a “bad thing to use the tax code to distort investment decisions”? Obama’s plan simply trades “one group of loopholes for another,” said the Boston Herald in an editorial. And his proposed tax on overseas corporate earnings would hobble U.S. firms facing tough competition abroad. We already have one of the highest corporate tax rates in the world. Companies need a much lower rate across the board, “minus the Obama gimmicks.”

There’s plenty to like here in theory, said The New York Times. But this plan is so vague and incomplete that it “could too easily be hijacked by powerful corporations and their high-paid lobbyists,” with disastrous consequences for government revenue. Why should we lower the corporate rate at all? asked Robert Reich in CSMonitor.com. U.S. companies are booking record profits, but they are contributing the lowest share of them to the collective pot “in at least 40 years.” What’s more, under Eisenhower, corporations paid 32 percent of all tax revenues; now, it’s just 10 percent. Let’s just keep tax rates where they are for corporations, and close all their beloved loopholes.

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This plan just shows how “insanely difficult” tax reform is going to be, said Ezra Klein in WashingtonPost.com. Both parties say they want a simpler code, but they are laughably far apart on the details. Companies say the same thing, but they’re clearly interested in protecting their current tax arrangements. This plan lays out an election-year marker for reforming corporate taxation. But it says very little about how we’ll ever accomplish that.