Tax Break

Obama in bind over corporate tax reform-ex-Aide

January 30, 2012

Former White House Adviser Jared Bernstein

President Barack Obama spent a lot of time during his State of the Union speech last week talking about taxes – from Warren Buffett secretary’s high tax rate to a call to give tax breaks for manufacturers and promote ‘in-sourcing’ of U.S. jobs.

The president also said he’d be putting out more meat on several policy ideas he floated – including a minimum tax on foreign income and a pitch to give tax credits to companies that bring jobs back to the United States.

But whatever happened to a corporate tax overhaul plan Obama’s Treasury Secretary Timothy Geithner called imminent this time last year?

“Some of this is the business community saying we really want corporate tax reform and you show them corporate tax reform and they say ‘yuck’,” said

Jared Bernstein, who was vice president Joe Biden’s economic adviser until last April.

Obama has agreed with the business community that the top 35 percent corporate tax is not competitive with the rest of the world, and advisers had floated a rate in the high-20 percent range as a goal. 

Bernstein, a liberal economist now at the Center for Budget and Policy Priorities, said the Treasury’s corporate tax plan was “pretty far along,” but then fell off track when some in the business community saw the tax breaks they might have to forfeit.

“You don’t want to release a proposal that the people that are asking you for it are against it from day one,” he told Reuters.

Obama is in a bind, Bernstein said, because he wants to promote American manufacturing but “tax reform” to most means taking away provisions favoring select industries over others.

For example, he noted that accelerated depreciation and the production tax credit – two of the biggest tax expenditures in the corporate code – help manufacturers.

“When you do this base broadening you have to go where the money is,” he said. “And the administration is clearly interested in help manufacturing.”

Indeed, Obama promoted cutting tax rates for manufacturing in his State of the Union and doubling a break for “high-tech” manufacturing.

A key request of the business community is movement to a “territorial” tax system, where U.S. companies do not pay taxes on income earned abroad.

Bernstein has advocated a “tough” territorial approach in which you exempt some foreign earnings would be exempt from domestic taxation.

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