Democracy Gone Astray

Democracy, being a human construct, needs to be thought of as directionality rather than an object. As such, to understand it requires not so much a description of existing structures and/or other related phenomena but a declaration of intentionality.
This blog aims at creating labeled lists of published infringements of such intentionality, of points in time where democracy strays from its intended directionality. In addition to outright infringements, this blog also collects important contemporary information and/or discussions that impact our socio-political landscape.

All the posts here were published in the electronic media – main-stream as well as fringe, and maintain links to the original texts.

[NOTE: Due to changes I haven't caught on time in the blogging software, all of the 'Original Article' links were nullified between September 11, 2012 and December 11, 2012. My apologies.]

Friday, August 02, 2013

Obama’s Corporate-Tax-Cut Proposal Is Clever, But Is It Wise?

My first reaction on reading about President Obama’s proposal to cut the corporate tax rate to twenty-eight per cent, which he unveiled in Chattanooga, Tennessee, on Tuesday, was that it sounded vaguely familiar. And, indeed, it was. Looking back through the clippings, I came across a news story by Jackie Calmes, a White House reporter at the Times:

    President Obama will ask Congress to scrub the corporate tax code of dozens of loopholes and subsidies to reduce the top rate to 28 percent, down from 35 percent, while giving preferences to manufacturers that would set their maximum effective rate at 25 percent, a senior administration official said on Tuesday.

    Mr. Obama also would establish a minimum tax on multinational corporations’ foreign earnings, the official said, “to discourage accounting games to shift profits abroad” or actual relocation of production overseas.

The date of the story was February 22, 2012. The idea, Calmes reported, had been in the works at the Treasury Department for two years, which means that it originated in 2010, before the Democrats got a hiding in the midterms and the Tea Party arrived in Washington en masse.

What is new about the President’s corporate-tax proposal is its packaging, and the fact that he coupled it with a call for more spending on infrastructure projects and other job-creation schemes, saying that he was offering the Republicans, who have long campaigned for a cut in the corporate tax rate, a “grand bargain for middle-class jobs.” The President didn’t specify precisely where the new revenue would come from, or how much it would be, but in briefings his aides suggested that the primary source would be a modest one-off levy on the roughly one and a half trillion dollars in untaxed earnings that American corporations are holding overseas.

The White House or Treasury official who came up with that wheeze must have been pretty pleased with himself or herself. From a political perspective, it is undoubtedly clever. Ever since the 2010 midterms, the President has been boxed in by the Republicans’ refusal to raise tax revenues and by his own pledge to reduce the budget deficit. He is trying to fight his way out of the box, albeit belatedly, by shifting the emphasis to creating jobs and investing in the future. In a speech in Illinois last week, he repackaged some of his spending proposals as a “middle-out” economic agenda, and in an interview with the Times he called for “a shift away from what I think has been a damaging framework in Washington”—i.e., one that focusses almost entirely on deficit reduction.

The proposal to reduce the corporate tax rate represents the next stage of the White House counteroffensive: it allows the President to portray himself as a tax-cutter and a friend of business, as well as someone who fights for Middle America. After all, American corporations have long been complaining that they face one of the world’s highest tax rates on the profits they generate, even though the effective rates that they pay are much lower. In return for getting their tax rate reduced by a fifth—for manufacturers, the cut would be even larger—and for being allowed to repatriate their overseas profits, surely they shouldn’t mind making a modest contribution to the Treasury.

That’s the White House’s pitch, anyway, and, on the face of it, it’s a pretty effective one. The Republicans’ angry reaction to the President’s speech—aides to House Speaker John Boehner complained they weren’t given any advance notice of the plan—probably reflected the fact that it left them wrong-footed. A bit more surprising was the reaction of John Engler, the president of Business Roundtable and the former governor of Michigan, who flatly rejected the deal Obama offered, saying that any money raised during the transition to a new system should be used to lower the corporate tax rate as much as possible, rather than for “unrelated spending.” (But maybe Engler’s reaction should have been expected. In the past few years, lobbying organizations like the Business Roundtable and the U.S. Chamber of Commerce have moved so far to the right that they don’t necessarily reflect the views of their members. I would guess that most American corporations take a positive view of the President putting corporate-tax reform front and center, even as they reserve the right to inspect the details of how it is done.)

With the country clearly needing higher spending on things like transport infrastructure and community colleges, the attractions of the “grand bargain” are obvious, and I think the general idea of combining tax reform with spending proposals is an eminently defensible one. But I do have some misgivings about the reform, including that it might lead to a Congressional bidding war to do more favors for big corporations and campaign contributors. Once that gets going, the eventual outcome could be very different from the one that the White House envisages.

In the nineteen-fifties, corporate taxes accounted for about a third of federal tax revenues; today, they contribute less than a tenth. At a time when over-all revenues are running markedly below their historic averages relative to G.D.P., the Obama Administration and Congress should be focussing on ways to wring more money out of big companies—not less, or even the same amount. At least in private, the White House and the Treasury Department will say that’s what they are doing. In calling for the reform to be revenue neutral over the long term, and in appropriating some of the monies that would be created during the transition to the new system, they are effectively calling for a modest tax increase over the short term, although they would be understandably reluctant to describe it as such.

But insuring that corporate-tax reform ends up being revenue neutral will be far from simple. It will require powerful interest groups, such as oil and gas drillers and the proprietors of hedge funds and private-equity firms, to give up lucrative loopholes and to pay more in taxes than they do now. It will mean reforming depreciation allowances, which currently allow companies to overstate the rate at which their capital assets decay. It will require standing up to small businesses that pay income taxes rather than profit taxes, which will claim, with some cause, that the reform discriminates against them. It will require insisting that American-based multinationals pay at least some taxes on their worldwide earnings, rather than shifting to a “territorial” system of taxation, which is probably the No. 1 one item on the corporate-lobbying agenda. Even assuming that Congress manages to insist on all these things, it would require lawmakers to refrain, as the years go by, from larding the new system with fresh giveaways and loopholes.

In a better world, the political system in Washington, led by the Administration and supported by responsible leaders in Congress, would work to insure that all this happened, standing up to the lobbyists and rendering the tax system more efficient. Will things actually turn out that way? Well, what do you think?

Original Article
Source: newyorker.com
Author: John Cassidy

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