Pay Less, Pay All: the Tax Business for Obama

Pay less, pay all: If Barack Obama’s tax reform passes, that will be true even for companies. What Obama has drawn up is a profound simplification, a thinning of the jungle of tax breaks, allowances and deductions. His plan also contains an increased tax burden for multinational companies to discourage the outsourcing of jobs. But the final score is good for business: The maximum tax rate on profits drops from the current 35 percent to 28 percent. In manufacturing, it’ll be possible to enjoy an even lower rate, 25 percent, in order to encourage the re-industrialization of the country, which we’ve already seen some signs of. For multinational companies, the president expects a “minimum tax,” a flat tax that “[discourages] accounting tricks to shift foreign profits.”

Of course, Obama’s proposal, though ambitious, seems cautious compared to the promises thrown around by the Republican candidates vying for the presidential election. And nothing will be decided before November, when a big part of Congress, thus far paralyzed by Republican obstructionism, will be updated along with the presidency.

Mitt Romney, the most moderate among those contending for the Republican Party’s nomination, has repeatedly called for a net tax rate of 15 percent. The percentage is dear because it coincides with the multimillionaire’s own personal income tax rate. Like many capitalists, Romney has revenues that include capital gains, which already enjoy a lowered tax rate, much lower than the rate employees pay on wages.

Obama has already submitted his proposal for the Buffet Tax, the tax on millionaires that he wants to introduce to ensure that they pay at least 30 percent.

His re-election strategy assigns a crucial role to this issue of equity after decades of increasing distance between the wealthiest people and the majority of the population. The Republicans, on the other hand, favor a further reduction of taxes, even on the wealthiest, by means of the introduction of a “flat tax,” a single rate that would eliminate any progression in tax rates.

But the new plan presented yesterday by Obama focuses primarily on how business taxation is handled. Even in this field, U.S. legislation has gotten complicated over the decades to the point that it has become a jungle full of contradictions and injustices.

Treasury Secretary Tim Geithner presented the reform as one that “will help level the playing field for businesses and allow the government to collect needed revenue while promoting economic growth.” The current 35 percent tax on profits – denounced as “the highest in the world” by the candidates on the right – actually affects only a minority of firms.

Of the 500 publicly traded companies that are part of the Standard & Poor’s index, 115 pay a tax on their profits of less than 20 percent. And indeed, 55 percent of American companies did not pay a single dollar of taxes over a span of seven years, according to a study by the Government Accountability Office. Even giants like Google, Boeing and General Electric pay far less than the “theoretical” rate of 35 percent. The explanation lies in that jungle of tax breaks and special concessions that’s been called corporate welfare, i.e. the welfare state in service of big business. This is the result of decades of pressure from various lobbies, each capable of extracting special treatment for their own constituency.

Obama is aiming for a reform with a uniform revenue, which would have the advantage of simplifying the tax code and ending the disparity. The President also wants to eliminate what has become a de facto incentive for outsourcing: the ability of U.S. multinationals to legally avoid taxation on their earnings until the profits come back into the country.