Obama Proposes “Grand Bargain” on Tax Reform, Infrastructure

The president offers to reduce corporate taxes if opposition Republicans agree to raise infrastructure spending.

President Barack Obama delivers his State of the Union address to Congress, January 25, 2011
President Barack Obama delivers his State of the Union address to Congress, January 25, 2011 (White House/Pete Souza)

President Barack Obama offered opposition Republicans a “grand bargain for middle-class jobs” on Tuesday that would reduce corporate tax rates while investing billions of dollars in infrastructure projects.

The president, who previously appeared to have little interest in tax reform, proposed to cut America’s corporate tax rate of 35 percent — the highest in the industrialized world — to 28 and give manufacturing companies a preferred rate of 25 percent. In a speech in Tennessee, he also suggested that a minimum tax on foreign earnings should be instated to fight tax evasion.

The Democrat, who was elected to a second term in November, conditioned his support for tax reduction on extra infrastructure spending to repair bridges and roads as well higher education spending.

In his most recent budget proposal in April, the president called for an $167 billion increase in infrastructure spending, financed in part by a tax increase for incomes over $1 million and ending the wars in Afghanistan and Iraq. Republicans rejected both the tax hike and the alleged war “savings” which they argue shouldn’t be counted because the money wasn’t supposed to be spent anyway.

Republicans, who control the lower chamber of Congress, are also wary of raising infrastructure spending when the president’s 2008 economic stimulus failed to create jobs. A third of the $787 billion in stimulus was supposed to be spent on infrastructure but The Economist found that just $64 billion was actually allocated to aviation, bridges, public transport, rail, roads and wastewater systems. Moreover, because the bill prioritized “shovel ready” plans, few new initiatives were undertaken. The Associated Press found in 2010 that the surge in infrastructure spending had had no effect on joblessness.

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