Tax Break

Essential tax and accounting reading: Contrasting tax plans from Obama and Romney, unequal tax payments, dividend tax hike, and more

February 23, 2012

A Rick Santorum campaign video screens at Mitt Romney's South Carolina primary rally, January 21, 2012. REUTERS/Brian Snyder

Welcome to the top tax and accounting headlines from Reuters and other sources.

* Obama, Romney offer contrasting tax plans. Zachary Goldfarb and Philip Rucker – The Washington Post. President Barack Obama and Republican presidential contender Mitt Romney offered competing proposals for how the government should tax citizens and companies, previewing the ideological clash over taxes that is likely to be at the forefront of the general-election campaign. Obama released a long-awaited plan to overhaul the country’s corporate tax code that plays directly to his base, following his call this month for significant tax hikes on the wealthiest Americans. A short time later Romney unveiled a series of deep cuts in personal and corporate income tax rates, the kind of reductions that have become a tenet of Republican economic thinking. The former Massachusetts governor proposed reducing the rates for individual taxpayers by a fifth, meaning that the highest earners would pay a top rate of 28 percent, compared with 35 percent today. He also suggested taxing corporate profits at a rate of 25 percent. Link

* Obama urges corporate tax cut, closing loopholes. Kim Dixon and Rachelle Younglai – Reuters. President Obama made an opening offer in what could be a long negotiation with corporate America on Wednesday, putting forward his first detailed plan to cut the corporate tax rate. Though it has little chance of becoming law in an election year with Congress paralyzed over fiscal issues, the plan shows Obama’s intent to favor domestic over offshore manufacturing and to broaden the tax base by closing corporate tax loopholes. Of the 30 companies that make up the Dow Jones industrial average, 19 told shareholders that their effective tax rate for their 2011 fiscal years (mostly ending Dec. 31) was lower than Obama’s proposed new tax rate. Link

* Romney proposes 28 percent top U.S. income tax rate. Steve Holland and Patrick Temple-West – Reuters. Republican Mitt Romney revised his proposal for overhauling the U.S. tax code, calling for all individual tax rates to be cut by 20 percent while declining to offer specifics on how to make up the lost revenue from lower rates. Romney’s new tax plan would put the top individual tax rate at 28 percent, down from the top statutory 35 percent rate and matching rival Republican presidential candidate Rick Santorum’s proposed top rate. Romney is seeking to regain momentum in his campaign for the 2012 Republican presidential nomination to face Obama, a Democrat, in the Nov. 6 election. The Romney campaign said on Wednesday that the candidate’s overall budget plan would be revenue neutral. But it provided no details on which politically contentious tax breaks would be cut to avoid ballooning the budget deficit if his tax cuts were implemented. Link

* Winners and losers from a tax proposal. Binyamin Applebaum – The New York Times. The Obama administration, seeking to promote domestic manufacturing without increasing the federal deficit, proposed Wednesday to offset new tax breaks for manufacturers by raising taxes on a wide range of other companies. Some of the prospective losers are familiar targets, including oil and gas companies, private equity firms and companies that move jobs overseas. The proposal would also roll back provisions that benefit a range of other companies, including Menards, the Midwestern home improvement chain; Brown-Forman, which distills Jack Daniel’s; and Duke Energy, of North Carolina. Some manufacturing firms could face higher taxes, too, because they are major beneficiaries of those same provisions. Over all, the plan seeks to reduce the share of profits manufacturers pay in federal taxes from an average of 26 percent in 2007 and 2008 to a maximum of 25 percent. Link

* Our unequal tax system, in one HTML table. Brad Plumer – The Washington Post. Bruce Bartlett and Kevin Drum point to a striking table in the 2012 Economic Report of the President showing that there’s a huge variation in what people of similar income levels actually pay in federal taxes. Those in the middle income quintile, for instance, can pay anywhere between 1.7 percent and 23.5 percent of their income in federal taxes. About a quarter of the wealthiest Americans, meanwhile, have a lower average tax rate (17.4 percent) than many of those making far less money. What explains the wild variation? Part of it is that some Americans – Mitt Romney is the most famous example – get a sizeable chunk of their income from capital gains, taxed at a lower rate than salaries. Link

* Obama’s dividend assault. The Wall Street Journal editorial. President Barack Obama’s 2013 budget is the gift that keeps on giving – to government. One buried surprise is his proposal to triple the tax rate on corporate dividends, which believe it or not is higher than in his previous budgets. Obama is proposing to raise the dividend tax rate to the higher personal income tax rate of 39.6 percent that will kick in next year. Add in the planned phase-out of deductions and exemptions, and the rate hits 41 percent. Then add the 3.8 percent investment tax surcharge in ObamaCare, and the new dividend tax rate in 2013 would be 44.8 percent – nearly three times today’s 15 percent rate. Keep in mind that dividends are paid to shareholders only after the corporation pays taxes on its profits. Link

* Romney’s tax reboot. The Wall Street Journal editorial. One oddity of this Republican presidential primary season is that frontrunner Mitt Romney has had by far the least inspiring tax plan. That changed yesterday when the former Massachusetts governor took a dive into the deep end of the tax reform debate with a proposal that includes a 20 percent across-the-board cut in income tax rates. Now we’re getting somewhere. Romney has already proposed a cut in the corporate tax rate to 25 percent from 35 percent, and by adding the cut in the business pass-through rate to 28 percent he is proposing the more ambitious and far more economically potent reform. Link

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