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The Corporate Tax Rate Morass

Treasury Secretary Timothy Geithner

Sometimes, one has to admire the Obama administration. They can be a sneaky bunch in that White House.

Today, the administration handed the Republicans almost what they wanted – a reduction of the top corporate tax rate from 35% to 28%, not exactly the 25% some have championed, but a big cut nonetheless. They even proposed increasing credits for research and development and manufacturing. Victory for the Repubs, right?

Wrong.

The first section of this little “gift horse” is a list of deductions and subsidies we should eliminate, the kind of changes that would offset the rate reduction, would prevent massive loss of revenue to our overstretched treasury. You know, the kind of off-sets that the Republicans demand when our President asks for tax relief for the lower classes. Unfortunately, that first section proves that just eliminating a few of these tax breaks won’t offset the lost revenue. Gee whiz. Oo-o-o-h, that’s sneaky, guys. Let’s just prove what the things you Republicans want will do to our national debt and deficits.

The tax rates could be lowered very easily. It would just require jettisoning the whole overblown tax code and starting over. No deductions, no tax credits, no tax breaks, no separation of types of income and no separation of income and payroll taxes, just a graduated set of basic rates. When California’s Gov. Jerry Brown ran for President, back in the 1970s, a flat 10% rate would have done it. When Steve Forbes ran in the 1980s, it was 17%. Today, the best solution would be a graduated rate. A flat rate won’t really work, putting too much burden on the lower incomes.

The middle of the gift horse is a proposal also close to Republican hearts – a tax credit for research and development and a reduction of the tax rate for manufacturers to their beloved 25%.

The butt end of the horse is a proposal that would be entirely within the purview of the State Department – a global minimum tax. It would involve a great deal of co-operation from those places that help corporations shelter their incomes and shift their incomes to lower tax nations. It is an idea that has been floated in the industrialized countries for a few years now, to eliminate the revenue loss from all these companies that can shift income around the world to avoid taxes, companies like General Electric and BP.

There are several ways the accounting works on this horse. It will either raise around $200 billion or be revenue neutral (neither increasing nor decreasing revenue) or it could cost us a buttload. It all depends on what Congress does with this proposal. But it does meet the requirements of the Republicans – it lowers the corporate tax rate, and has off-sets for the lower taxes.

As the great Arte Johnson would say “Ver-r-r-r-r-r-y interesting.”

 

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