Obama Corporate Tax Proposal Not Much of a Deal

July 30, 2013

Focus Must Stay on Pro-Growth Reform

Washington, D.C., July 30, 2013—President Obama’s reported plan to cut the corporate tax rate while increasing business taxes elsewhere in order to fund a new federal jobs program is a confused mix of policies that should each have to stand or fail on their own merits, according to Tax Foundation president Scott Hodge.

“The President has often spoken in favor of the need to reduce the U.S. corporate tax rate, and he’s right – we have the highest rate in the world and that needs to come down in order to make us more competitive around the world.” said Hodge. “But improving the corporate tax code with one hand while placing extra burdens on U.S. companies with the other is not going to lead to the increase in jobs and economic growth we need.”

According to press reports, President Obama will call for the corporate tax rate to be lowered from 35% to 28%, with a reduced rate of 25% on manufacturers. At the same time, the White House is considering changes that would go after profits held internationally by U.S. companies, make writing off the cost of new investments in plants and equipment more difficult, and impose a minimum tax rate for companies operating overseas.

“When it comes to the corporate tax code, there are two major changes that will stimulate investment and lead to greater economic growth. One, as the President has acknowledged, is cutting the corporate rate. The other, which he seems dead set against, is to follow the lead of our major trading partners and only tax corporate profits that are earned in this country,” continued Hodge.

The Tax Foundation’s dynamic growth model has found that cutting the corporate tax rate to 25%, even with no offsetting changes in other provisions, would boost GDP by over 2% and wages by nearly 2%, and ultimately increase federal tax revenues. These advantages would accrue without the need to pay for a rate cut by increasing taxes on U.S. companies operating abroad or worsening the write-offs for capital investments.

“The final problem with this plan is the attempt to combine a vital reform like lowering the corporate rate with billions more in federal spending to provide a temporary jobs stimulus. A growing economy is the best jobs program we could ask for, and only policies that contribute to that goal should be moving forward,” concluded Hodge.

The Tax Foundation is a nonpartisan research organization that has monitored fiscal policy at the federal, state and local levels since 1937. To schedule an interview, please contact Richard Morrison, the Tax Foundation’s Manager of Communications, at 202-464-5102 or morrison@taxfoundation.org.

The Tax Foundation is the nation’s leading independent tax policy research organization. Since 1937, our principled research, insightful analysis, and engaged experts have informed smarter tax policy at the federal, state, and local levels.