Wednesday morning, Fox News predicted a wonderful new tax plan from the administration:
…long-awaited corporate tax reform plan on Wednesday, lowering the top income-tax rate for corporations to 28 percent from 35 percent while eliminating deductions.
Corporations with overseas operations would also face a minimum tax on their foreign earnings, new tax benefits would be given to incentivize U.S. manufacturers while taxes on oil and gas companies would reportedly see their taxes go up while losing many large deductions and subsidies.
Moreover, he wants to make permanent his tax credits and other subsidies for his favored “green” energy products; although in a cynical offering to conservatives, the proposed Obamatax also contains the Santorum manufacturer’s tax subsidy. Obama never seems to understand that if a product, company, or industry can’t compete on a level playing ground—in an actual free market—that product, company, or industry isn’t ready for market at all.
Along these lines of special treatments according to whether Obama approves or disapproves of an industry, the Obamatax would eliminate oil and gas tax preferences (while maintaining those “green” subsidies). This, though, will drive up gasoline prices and home (and business) heating costs—and those manufacturers’ energy costs—to the detriment of our struggling economy and of the Americans trying to get by in it. Despite this, the subsidies should, indeed, be gotten rid of, but the “green” subsidies should be eliminated, too. With a truly level playing field, the effects will spike and ripple quickly, and costs ultimately will stabilize at lower levels from the overall simplification and the lack of “green” costs being absorbed by the oil and gas—and all other—industries and energy consumers.
The Obamatax applies a tax to business’ overseas profits, a first in American history—and a dramatic increase in the taxes owed by American businesses. The administration justifies this with claims like:
If foreign earnings of U.S. multinational corporations are not taxed at all, these firms would have even greater incentives to locate operations abroad or use accounting mechanisms to shift profits out of the United States[.]
On the other hand, Intel, just to take one example, earns 85% of its revenue from its overseas computer chip and other manufacturing facilities—facilities that are devastatingly expensive to build or operate here. Now Intel’s overseas profits will be taxed. Since Intel makes its money overseas, though, why would it want to remain a US-headquartered corporation under the Obamatax regime?
There’s also the small matter of who gets this tax “cut.” It isn’t the sole proprietorships, partnerships, Subchapter S, and so on firms whose profits are passed on to the business’ owners, who then pay ordinary income taxes on that passed through income. Obama’s own IRS data indicate that over half of American business income is earned by these “noncorporate” companies. But that needn’t concern an administration bent on raising taxes any way it can get away with.
True to form (this form is not unique to the present administration), the Obamatax dictates to businesses what their policies and paradigms must be. It intends to eliminate “last in first out” accounting, disallow the use of life-insurance policies as a tax shelter, tax carried interest as ordinary income, and eliminate depreciation for corporate aircraft (this last is chump change, but it’s an important bone for the President’s base). Even more intrusively, though, the Obamatax interferes with debt financing decisions by reducing the deductibility of interest on business’ borrowings.
There’s the underlying mindset, too. The Obamatax justifies the “minimum tax on foreign earnings” by saying it would
discourage a global race to the bottom in tax rates.
as if low taxes, or having the lowest taxes globally, is somehow bad. As if it’s really the government’s money, and they’ll magnanimously let our companies have what government deems appropriate.
In touting this tax change (it’s hardly a reform), Secretary Geithner said that the overhaul should be fiscally responsible (the Obama definition of “responsible,” of course) and,
A key test of any reform should be whether the net impact of the changes improves the incentives for investing in the United States.
If he really meant that, why is this the proposal? Answer: he really does believe it; the proposal’s structure simply displays, again, the administration’s breathtaking lack of understanding of economics.
Obama is masquerading this as a tax cut, but it’s plainly another of his tax increases, and it’s commensurately hard on our already weakened economy. It’s a good idea to lower the tax rate, and it’s a good idea to eliminate (though reductions are a good start) tax credits, loopholes, subsidies, and the like. But these must be across the board—no company or industry should be getting special government treatment, good or bad.