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Obama wants to cut corporate tax rate to 28%

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Started 3 months ago by News
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News
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Obama wants to cut corporate tax rate to 28% as part of overhaul
February 22, 2012, 5:56 a.m.

President Obama wants to significantly lower the top corporate income tax rate to 28% as part of a broad overhaul that would raise an additional $250 billion from businesses over the next decade by eliminating many loopholes and other breaks, according to a senior administration official.

Full details of the administration's long-awaited corporate tax reform plan will be released later Wednesday morning by Treasury Secretary Timothy F. Geithner, touching off an election year debate about how much corporations should pay in taxes.

The broad parameters of Obama's plan include lowering the effective tax rate -- the real amount corporations pay after tax breaks are deducted -- to no more than 25%, down from the current 32%. But the package would seek to raise $250 billion more from corporations over the next 10 years.

READ MORE: http://www.latimes.com/business/money/la-fi-mo-obama-corporate-taxes-20120222,0,4725599.story

Posted 3 months ago #
mdkruse2
Gahanna
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I agree with levelling out the corporate tax rate by lowering the standard and minimizing the effective by eliminating loopholes... but does this still encourage corporations to produce domestically?

Posted 3 months ago #
GCrites80s
5xNW
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Anything that can be done to lower the cost of doing business in the States vs. another country helps shift jobs back here. If it's no longer cheaper to produce items abroad and there's fewer advantages in hiding money in overseas operations more money stays here.

Posted 3 months ago #
mdkruse2
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GCrites80s said:
Anything that can be done to lower the cost of doing business in the States vs. another country helps shift jobs back here. If it's no longer cheaper to produce items abroad and there's fewer advantages in hiding money in overseas operations more money stays here.

The only problem is that it is extraordinarily cheaper to produce goods overseas. Part of it is labor, part of it is taxes, and some of it is the absence of free trade. As far as hiding money overseas, corporations amass money in offshore accounts and wait for the government to institute a "window" in which they can move these funds into the US at a rediculously low rate. The last time this was done was in the first couple years of Bush Jr., and the tax rate he charged corporations to bring in overseas cash was at 5%.

Posted 3 months ago #
Buster Bluth
Columbus, OH
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Smart move by Obama. It makes me wonder one thing though: why the hell wasn't he for this three years ago?

Loopholes need to be closed and the tax structure needs to be simplified. This is a good development if it actually gets done.

Posted 3 months ago #
Twixlen
Westgate, Columbus
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mdkruse2 said:
The only problem is that it is extraordinarily cheaper to produce goods overseas. Part of it is labor, part of it is taxes, and some of it is the absence of free trade. As far as hiding money overseas, corporations amass money in offshore accounts and wait for the government to institute a "window" in which they can move these funds into the US at a rediculously low rate. The last time this was done was in the first couple years of Bush Jr., and the tax rate he charged corporations to bring in overseas cash was at 5%.

There are a couple elements though that are being missed - one is any tax simplification (if that can really be accomplished with this sort of measure) will be a benefit. There is something to be said for a lack of hassle.

Another thing is this - you can't discount the push for American made goods, and I've read of a couple companies bringing their manufacturing back on shore, even though it cost them slightly more here - because they wanted to be able to say their product is made in America. It's good PR. And PR is money.

Posted 3 months ago #
mdkruse2
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Twixlen said:
There are a couple elements though that are being missed - one is any tax simplification (if that can really be accomplished with this sort of measure) will be a benefit. There is something to be said for a lack of hassle.

Another thing is this - you can't discount the push for American made goods, and I've read of a couple companies bringing their manufacturing back on shore, even though it cost them slightly more here - because they wanted to be able to say their product is made in America. It's good PR. And PR is money.

Trust me, I'm all for simplifying the tax code, reducing corporate taxes and eliminating loopholes, and American Made Goods. It's nice that all candidates agree on this, but like most measures brought up in election season, there are rarely specific reasons why they (candidates, legislators, etc.) are pushing a certain reform. I would like to see some data on how 28% corporate and 25% manufacturing rates will bring more companies back into the US. The same goes for Romney's 25% and Santorum's 17.5%.

I guess the article makes a key point, or maybe it was a similar article, about putting an end to rewarding companies to move oversees.

Posted 3 months ago #
mdkruse2
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Buster Bluth said:
Smart move by Obama. It makes me wonder one thing though: why the hell wasn't he for this three years ago?

Loopholes need to be closed and the tax structure needs to be simplified. This is a good development if it actually gets done.

Also - love your photo, Buster

heeeeeeey brother

Posted 3 months ago #
Twixlen
Westgate, Columbus
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mdkruse2 said:
Trust me, I'm all for simplifying the tax code, reducing corporate taxes and eliminating loopholes, and American Made Goods. It's nice that all candidates agree on this, but like most measures brought up in election season, there are rarely specific reasons why they (candidates, legislators, etc.) are pushing a certain reform. I would like to see some data on how 28% corporate and 25% manufacturing rates will bring more companies back into the US. The same goes for Romney's 25% and Santorum's 17.5%.

I guess the article makes a key point, or maybe it was a similar article, about putting an end to rewarding companies to move oversees.

I don't disagree that election year politics are at play here.

We definitely have to stop rewarding companies to move overseas AND we have to stop rewarding the ones that have stayed by loopholing them to a free ride. *I'm staring at you, GE.*

Posted 3 months ago #
kit444
Elsewhere
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Some Socialist Obama is. We need to schedule him for some sessions in the Reeducation Camp.

Posted 3 months ago #
gramarye
In Exile
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People have a slightly mistaken impression about these hoards of cash being amassed overseas by American corporations: in almost all circumstances, that cash was not earned in America and then shipped overseas to hide from tax authorities. It was earned in foreign countries to begin with, and taxed there by the governments of those countries.

If you tax people on money they bring into America, then they'll bring less money into the country. It's that simple. I don't know why we tax repatriated (or maybe it should just be "patriated") earnings at all. The government will have the opportunity to tax that money when it is distributed as wages or dividends to American workers and owners, or when it's paid to some other company (which is likely to be an American company if the repatriating company thought it was worth bringing more money into the USA anyway).

Suppose you're Procter & Gamble and you have the option of either (a) moving $1 million from Canada into the USA and paying 35% of it to the US government, or (b) keeping it there and using it to grow your Canadian business (which is obviously proving to be a good market, since you've got these profits sitting around that you need to decide what to do with, after all), what are you going to be inclined to do? Would you rather your company have $1 million in Canada or $650,000 in the US?

Posted 3 months ago #
joev
Merion Village
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So inevitably, this won't pass because Republicans will find a reduction to 28% far too small.

Posted 3 months ago #
GCrites80s
5xNW
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mdkruse2 said:
The only problem is that it is extraordinarily cheaper to produce goods overseas. Part of it is labor, part of it is taxes, and some of it is the absence of free trade. As far as hiding money overseas, corporations amass money in offshore accounts and wait for the government to institute a "window" in which they can move these funds into the US at a rediculously low rate. The last time this was done was in the first couple years of Bush Jr., and the tax rate he charged corporations to bring in overseas cash was at 5%.

Mere production costs are cheaper overseas, but when you add back shipping, expensive IT systems, hiring translators, sending employees back and forth, bribes (illegal but still happen), international phone calls, mistakes due to poor communication and a whole host of other issues, overseas production isn't really that much cheaper.

Posted 3 months ago #
mdkruse2
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Twixlen said:
I don't disagree that election year politics are at play here.

We definitely have to stop rewarding companies to move overseas AND we have to stop rewarding the ones that have stayed by loopholing them to a free ride. *I'm staring at you, GE.*

Seriously! Who pays 0% tax these days??

gramarye said:
People have a slightly mistaken impression about these hoards of cash being amassed overseas by American corporations: in almost all circumstances, that cash was not earned in America and then shipped overseas to hide from tax authorities. It was earned in foreign countries to begin with, and taxed there by the governments of those countries.

If you tax people on money they bring into America, then they'll bring less money into the country. It's that simple. I don't know why we tax repatriated (or maybe it should just be "patriated") earnings at all. The government will have the opportunity to tax that money when it is distributed as wages or dividends to American workers and owners, or when it's paid to some other company (which is likely to be an American company if the repatriating company thought it was worth bringing more money into the USA anyway).

Suppose you're Procter & Gamble and you have the option of either (a) moving $1 million from Canada into the USA and paying 35% of it to the US government, or (b) keeping it there and using it to grow your Canadian business (which is obviously proving to be a good market, since you've got these profits sitting around that you need to decide what to do with, after all), what are you going to be inclined to do? Would you rather your company have $1 million in Canada or $650,000 in the US?

This is a true statement, and goes along with the incentive to create factories overseas when their tax rates are so much smaller. The repatriated income is earned overseas, and earned in the overseas sales entity, but they still need some of that money to pay for US overhead if they are headquartered there. Exchange rates may play a roll in this too - I'm not sure.

GCrites80s said:
Mere production costs are cheaper overseas, but when you add back shipping, expensive IT systems, hiring translators, sending employees back and forth, bribes (illegal but still happen), international phone calls, mistakes due to poor communication and a whole host of other issues, overseas production isn't really that much cheaper.

Sometimes manufacturing costs may border on breakeven, or may even be more expenses for the reasons you stated, but given the difference in tax breaks, tarrifs and loopholes it gives corporations more than enough reason to move to overseas production. I don't trust corporations enough to move production back into the US from the goodness of their hearts. Can't blame them either when there's so much competition.

The fallout is the US loses this income, and the US citizens don't get these jobs.

Posted 3 months ago #
Snarf
Dystopia
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mdkruse2 said:
Seriously! Who pays 0% tax these days??

People not reporting cash income.

Posted 3 months ago #
gramarye
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mdkruse2 said:
This is a true statement, and goes along with the incentive to create factories overseas when their tax rates are so much smaller. The repatriated income is earned overseas, and earned in the overseas sales entity, but they still need some of that money to pay for US overhead if they are headquartered there. Exchange rates may play a roll in this too - I'm not sure.

Exchange rates don't play too much of a role because they're already factored in when people assess how much money is overseas.

As for repatriating money to pay for U.S. overhead, companies will do that if they have to, but they'll more likely look to reduce their U.S. overhead to the level that their U.S. revenue can cover on its own. They don't want to pay American and Canadian taxes on the same money when they could simply use the money in Canada and pay only Canadian taxes on it.

Some people seem to believe that all of this money is just sitting around in the Cayman Islands or the Bahamas. That's generally not the case. The money is in the hands of the fully functioning operating subsidiaries of major American companies with global operations. Apple, Procter & Gamble, McDonald's, Coca-Cola, etc. all have sales across the globe. From their perspective, keeping their Japanese-earned money in Japan isn't so different than Honda of America keeping a lot of its American-earned revenue here rather than sending it back to Japan.

Posted 3 months ago #
mdkruse2
Gahanna
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gramarye said:
Exchange rates don't play too much of a role because they're already factored in when people assess how much money is overseas.

As for repatriating money to pay for U.S. overhead, companies will do that if they have to, but they'll more likely look to reduce their U.S. overhead to the level that their U.S. revenue can cover on its own. They don't want to pay American and Canadian taxes on the same money when they could simply use the money in Canada and pay only Canadian taxes on it.

Some people seem to believe that all of this money is just sitting around in the Cayman Islands or the Bahamas. That's generally not the case. The money is in the hands of the fully functioning operating subsidiaries of major American companies with global operations. Apple, Procter & Gamble, McDonald's, Coca-Cola, etc. all have sales across the globe. From their perspective, keeping their Japanese-earned money in Japan isn't so different than Honda of America keeping a lot of its American-earned revenue here rather than sending it back to Japan.

They do hold their money in banks overseas though, whether it is in swiss bank accounts or in banks located within the country they produce goods. Also, I think the overhead issue applies to more business that have no or very little income in the US, but all of the engineering, sales, marketing, executives, etc. are stationed. Plus, if they can move cash from banks overseas into the US, and use that money for R&D which is taxed at a minimal rate and exempt from many other taxes, it will also reduce their taxable income within the US and look better on income statements for investors when they show more reinvestment into their own company. I'm sure there are lots of transactions between banks in different countries, and consideration placed on rates of return for their capital that influence the movement of cash within the companies business and sales units.

Posted 3 months ago #
Buster Bluth
Columbus, OH
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Don't you all think that an even more effective way to create jobs would be to lower the tax rate on small businesses? I am a Republican (gasp!), but I do hate when the GOP says that the "rich are the job creators." The uber-rich are not creating jobs in their corporations with their money. The CEO of (insert huge corporation) isn't turning around and reinvesting HIS money, so taxing him would not create job growth. Raise his taxes all day if you wish. (You could probably argue that he creates jobs by buying yachts and gardeners though...)

But I remember as a kid that my father would make $400,000/yr or something (the owner of a road construction business) and then pay all of his employees, pay taxes and finally reinvest that money for the next season. At the end of the year he brought home less than a quarter than that. I'm not saying I grew up poor or anything but we definitely weren't rolling in the dough. Yet, in the eyes of the population, someone making ~$400k annually is freaking loaded...when that simply isn't the case if you own a business and its generated via that business.

Given that small businesses created 65% of job growth in the country over the last 17 years and that they currently employ half of the private sector employees....shouldn't we be looking for ways to lower their taxes too so they can prosper? I'm all for lowering the tax rate on corporations--or at least simplifying it sensibly and eliminating the loopholes.

Am I way off base here?

Posted 3 months ago #
gramarye
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mdkruse2 said:
Also, I think the overhead issue applies to more business that have no or very little income in the US, but all of the engineering, sales, marketing, executives, etc. are stationed.

You won't find many companies like that, simply because of how voraciously Americans spend. Apple, for example, has most of its manufacturing facilities overseas, while its design, engineering, marketing, and management are here. However, what matters is that its sales are prodigious in the U.S. as well--more than enough to cover its U.S. operations.

You won't find too many people keeping engineering and management here for the purposes of manufacturing products in China or Thailand to sell in Japan and the EU. If a company is that global, the odds are that they're already doing business here, not just running their business from here while making their money elsewhere.

Plus, if they can move cash from banks overseas into the US, and use that money for R&D which is taxed at a minimal rate and exempt from many other taxes, it will also reduce their taxable income within the US and look better on income statements for investors when they show more reinvestment into their own company.

It shouldn't matter what purpose a company proposes to use repatriated earnings for; it's already been taxed in the country that had its act together enough to provide the environment that that money could be earned in.

Spending repatriated earnings on R&D would only allow one to avoid the double taxation of earnings if (a) the company had no other U.S.-based earnings that it could spend on research and deduct from its income already, and (b) if the deduction as it's currently written allows for deducting against repatriated income in the same manner as it does for ordinary income. On the latter point, I'm not a sophisticated enough tax practitioner to know the answer (and international tax in law school was a while ago now). I'm betting that the former situation doesn't happen all that often anyway, though. In particular, larger, healthier companies will simply do their research here using their American-earned money and take advantage of that tax deduction, without ever needing to think about bringing in money from foreign affiliates to conduct that research.

Also, I'm not sure if Obama's proposal proposes to eliminate that deduction. That may be one of the things on the chopping block in order to broaden the base.

Posted 3 months ago #
rus

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Buster Bluth said:

Am I way off base here?

I don't think so, no. However, I'd add simplification of regulations to reduce compliance costs as well.

See also: http://www.economist.com/node/21547789

A study for the Small Business Administration, a government body, found that regulations in general add $10,585 in costs per employee. It’s a wonder the jobless rate isn’t even higher than it is.

Posted 3 months ago #