Tuesday, May 24, 2011
A depressingly logical prediction that President Obama's proposed reform of our federal corporate income tax, which in its current form is horrendously counterproductive, will fail. In the forecast scenario, both liberals and conservatives will be responsible for a bad result for American prosperity. Our dysfunctional national political dynamic in microcosm, I'm afraid to say.
The demagagouery over "subsidies" to oil companies is case in point.
Because the corporate tax rate is so high -- thus discouraging domestic manufacturing by companies that have the option of making things abroad -- we've given an additional tax deduction for qualifying domestic manufacturing operations. The idea is to bring jobs home.
This is is a "tax break", but it can't be called a "subsidy", fairly put. Not unless you believe that that part of what you earn which the government let's you keep is actually "spending through the tax code".
O&Co make it sound like the oil companies got their own special deal, when they're actually doing a turnabout on the deal that got struck on what was "manufacturing" which didn't distinguish between domestically creating oil and domestically assembling cars.
If you look at effective corporate tax rates by industry there's a clear pattern and wide divergence. BigPharma and SomeHighTech play games with intellectual property rights and transfer pricing, and pay low US taxes. It's amazing how much IP is owned by their Irish subsidiaries. Oil companies are one of the few categories of multinational that pay near full freight.
This is one of the biggest reasons for why registered lobbyists outnumber Congresscritters by 6 to 1.
But many kinds of domestic US companies pay at or near full freight. They're the ones that are getting hosed in all this.
There's no hope of reform here, on current trajectory.
Besides, with the Chinese announcing their own version of the Monroe Doctrine, via Hot Air, I'm not sure the president will have much time available to sort out the crazy tax side of the economy.
That said, my amateur take is there have to be winners in a political fight, or no one will fight for it. If TaxProf is telling us the president really has proposed a revenue-neutral corporate tax reform then I would say he never had any real interest in seeing it enacted.