Obama Turns Tax Reform Into Election Issue

The president isn’t actually leveling the playing field with his tax plan. He just picks different winners and losers.

President Barack Obama speaks on the phone in the Oval Office of the White House in Washington DC, January 5, 2011
President Barack Obama speaks on the phone in the Oval Office of the White House in Washington DC, January 5, 2011 (White House/Pete Souza)

President Barack Obama proposed a tax overhaul on Wednesday that challenged opposition Republicans’ plans to lift the tax burden on corporations while eliminating deductions and levying a special tax on multinationals that shelter profits overseas.

The president’s plan would lower the American corporate tax rate from 35 to 28 percent which is still above the industrialized world average of 25 percent. Obama wants to increase overall revenue by removing investment deductions and loopholes. Large companies can afford the accounts to figure out how to avoid paying the high 35 percent tax rate while small- and medium-sized business are disproportionately affected. If state and local taxes are factored in, their average tax burden rises to 39 percent.

As proposed in his State of the Union address last month, the president wants to penalize American companies that ship jobs overseas with a minimum tax on foreign earnings.

Most developed nations have moved in the opposite direction and do not tax profits that are made overseas because it would amount to a form of double taxation and undermine the competitiveness of their companies in a global marketplace.

The president also hopes to “reward” manufacturers that create jobs at home with a special tax break — the very sort of exemption that oil and gas companies currently enjoy and the president aims to eliminate in order to level the playing field.

Yet a tax credit for renewable energy producers would stay in place. So the president isn’t actually leveling the playing field. He just picks different winners and losers.

The reforms do fit the president’s reelection narrative. He lambastes foreign competitors like China for not “playing by the rules” and claims that oil and gas companies are “subsidized” (when in fact they enjoy tax breaks) at the expense of ordinary workers. He promises to rebuild American manufacturing and “invest” in small business loans and job retraining programs. The net result is zero tax reduction and fiscal consolidation that a pace that is almost imperceptible.