Business & Economics

Corporations don’t need a tax cut, so why is Obama proposing one?

Robert Reich

The Obama administration is proposing to lower corporate taxes from the current 35 percent to 28 percent for most companies and to 25 percent for manufacturers.

The move is supposed to be “revenue neutral” – meaning the Administration is also proposing to close assorted corporate tax loopholes to offset the lost revenues. One such loophole allows corporations to park their earnings overseas where taxes are lower.

Why isn’t the White House just proposing to close the loopholes without reducing overall corporate tax rates? That would generate more tax revenue that could be used for, say, public schools.

It’s not as if corporations are hurting. Quite the contrary. American companies are booking higher profits than ever. They’re sitting on $2 trillion of cash they don’t know what to do with.

And it’s not as if corporate taxes are high. In fact, corporate tax receipts as a share of profits is now at its lowest level in at least 40 years. According to the Congressional Budget Office, corporate federal taxes paid last year dropped to 12.1 percent of profits earned from activities within the United States. That’s a gigantic drop from the 25.6 percent, on average, that corporations paid from 1987 to 2008.

And it’s not that corporations are paying an inordinate share of federal tax revenues. Here again, the reality is just the opposite. Corporate taxes have plummeted as a share of total federal revenues. In 1953, under President Dwight Eisenhower, a Republican, corporate taxes accounted for 32 percent of total federal tax revenues. Now they’re only 10 percent.

But now the federal budget deficit is ballooning, and in less than a year major cuts are scheduled to slice everything from prenatal care to Medicare. So this would seem to be the ideal time to raise corporate taxes – or at the very least close corporate tax loopholes without lowering corporate rates.

The average American is not exactly enamored with American corporations. Polls show most of the public doesn’t trust them. (A recent national poll by the University of Massachusetts at Lowell found 71 percent with an unfavorable impression of big business – about the same as those expressing an unfavorable view of Washington.)

The Administration’s initiative doesn’t even make sense as a bargaining maneuver.

Republicans will just accept the Administration’s lower corporate tax rate without closing any tax loopholes. House Republicans have already made it clear that, to them, closing a tax loophole is tantamount to raising taxes. And corporate lobbyists in Washington know better than anyone how to hold tight to loopholes they’ve already got.

Big business will fight to keep their foreign tax shelters. After all, it’s almost impossible to distinguish between their foreign and domestic earnings, which is why the U.S. Chamber of Commerce and other business lobbies have spent the past three years trying to make it even easier for companies to defer U.S. taxes on income they supposedly earn outside the country.

Representative David Camp, a Michigan Republican who heads the House Ways and Means Committee, has already proposed a 25 percent corporate top rate and changes that would let companies avoid paying U.S. taxes on even more of the income they say they earn outside America.

Nothing is going to be enacted this year, anyway, so it would have made more sense for the Administration to support a hike in corporate taxes – and use it to highlight the difference between the President and his likely Republican challenger.

Mitt Romney wants to reduce the corporate tax rate to 25 percent before eliminating any tax loopholes. Rick Santorum wants to cut the rate to 17.5 percent and eliminate corporate taxes for manufacturers. Newt Gingrich wants to cut the rate to 12.5 percent and let companies write off all capital investments immediately.

It’s discouraging. The President gives a rousing speech, as he did on Dec. 6 in Kansas. Then he misses an opportunity to put his campaign where his mouth is.

Cross-posted from Robert Reich’s blog.

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Comments to "Corporations don’t need a tax cut, so why is Obama proposing one?":
    • Henry Trujillo

      Professor Reich, March 10, 2012, 1930 hrs.

      I have always admired your “rare” ability to speak “truth to power”! Let me be clear, I am not a Dr. of anything, nor do I consider myself a “fifty pound brain” but, I do know a few! I’m just a poor “SHMOE”, trying to survive and make financial ends meet, which they’re not! In today’s U.S.A., money and power are calling the shots, about everything and everyone who “lust” for power and “mo” money. The privileged, with a few, “wanna be’s”, act like Nero, playing their “stock market”, as D.C. burns. Be warned, “the alledged “Rapture” will not save your “asses” “Citizens”, Wake Up, Unite”! We’re in the “final throws” of a contest which will determine the future of this country. I know enough of history, to recognize a Nation, being “sucked dry” by the greedy, controlling, multinational corporate interests, not only of this Great Nation but of the entire planet. Our inattention, apathy and singular fight and focus to survive, have paralyzed us and our ability to act and “do our duty”! “VOTE”!!! Ask yourselves, does “government of the people, by the people, for the people”, even exist any longer? Da, I’m bad! It has been and increasingly continues to be…. “Government?”…. “of the rich by the rich, for the rich”! Do you really think, the “super rich”, have any clue, to what’s happening to “US”, “the people” of this Great Nation? We’ve been “duped and we continue to be duped”. If, we claim to be a nation, sanctified to God, do we truly believe our country is “under God” do we really believe, “in God We Trust”? “ shall we allow it to “perish from the earth” or shall we be: “dedicated to the great task remaining before us,” that this nation, under God, shall have a new birth of freedom — and that government of the people, by the people, for the people, shall not perish from the earth”.

      “I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. . . . corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed.”

      U.S. President Abraham Lincoln, Nov. 21, 1864
      (letter to Col. William F. Elkins)

      “Que el rey de la gloria eterna, nos haga participantes de su mesa celestial, Amen.

      Rosarito F. Trujillo, 98 yrs. young!

      Henry Trujillo
      Picuris, NM

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    • Tea Party Rocks

      Corporations should not be subjected to any taxes. First of all, they are doing something positive like providing job opportunities and paying benefits to employees. Corporate tax rates started at 1%. Now they are 35% and government still can’t steal enough money from them. Profits should only be taxed when they are paid out to individuals as dividends.

      The main problem is that government wastes most of the money it gets, needs to be limited to constitutionally approved activities and the IRS code needs to be abolished and replaced with something a 6th grader can understand. Corporate earnings are already taxed twice anyway. The main problem is that people in a democracy have found out that they can steal money from other people by instituting government mandates and making theft legal. This whole thinly disguised system of bribery and protection rackets makes the Mafia extremely envious and raises the US Government to the largest criminal organization in the world. And the money they can’t raise in taxes they simply print – legalized counterfeiting.

      Did it ever occur to Reich that corporate tax payments are down because profitability is down? His whole approach is what is causing the current economic malaise. Discouraging oil exploration, over taxation, shutting down manufacturing jobs, exporting jobs overseas, punishing the entrepreneurial class – this is what Reich and his allies in the Democratic Party are doing to ruin this country. They like the status quo because it keeps them in power and enables them to bring goodies to their supporters. We are never going to solve the problems this country faces without fundamental change. Otherwise we are going to end up just like Greece, lowered standard of living, civil unrest, cutbacks on social programs the government cannot afford to pay and probably austerity measures as well.

      We cannot keep going on like this indefinitely, our children and their children are going to pay the price for this generation’s lack of ability and will to do what is politically necessary to get us out of the Obama Depression and make this country productive again.

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    • Avi Rosenzweig

      “Tea Party Rocks” has Frank Luntz’s hand so far up his rear that he looks like the sock puppet he truly is.

      The American people will not swallow this kind of bilious propaganda, no matter how many astroturf patches fall out of the Koch Bros. hip pockets. Americans know in their guts that the GOP is only looking out for number one, and number one ain’t us.

      We’re not even number two to these plutocrats. Let them blow their hot air-ey ‘laissez-fairey’ into the atmosphere, stinking up our nation’s politics just as they’ve been stinking up our rivers and land, because we just aren’t going to buy it anymore. Real Americans saw what happens when you let Repooblicans be in charge — Katrina , 9/11, Iraq, ad nauseum. We will not top it all off with a layer of santorum.

      The best remedy for puppets like “Tea Party Rocks” can be found over the counter at your local pharmacy, in the pink bottle.

      [Report abuse]

    • Anthony St. John '63

      Prof. Reich, thank you very much for being the latest version of Socrates, telling the truth to people who don’t want to hear the truth.

      Too bad none of your colleagues choose to educate the public before it is too late to matter any more. The worst case scenario fact is that marginalization of the public by the culture of Ivory Tower Aristocracy is killing humanity.

      My best recommendation is to most strongly urge Berkeley professors and scholars to fix problems like poverty in Oakland and corruption in Sacramento by being role models like you, taking personal responsibility for making the right things happen before the ultimate window of opportunity closes for humanity.

      That’s the best recommendation I can make after years of learning from the Berkeley Blog, plus a lifetime of study and thinking.

      In the meantime, keep telling the powers that be what they can do with their hemlock.

      [Report abuse]

    • Val Zanchuk

      A generic corporate tax rate affects all corporations, not just the big multinationals. As the owner of a small manufacturing company, with limited sources of capital and cash, elimination of the so-called loopholes and favorable tax policies (such as the R&D tax credit) without a rate reduction can have a significant impact on my business. Rules and laws implemented to correct issues associated with the big players also apply to the small players. The big guys can usually wiggle out of them. The little guys get hammered.

      [Report abuse]

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