In an election-year showdown likely to hinge on the economy, President Obama and his Republican rivals are all fashioning themselves as corporate tax slayers.
Obama today unveiled his proposal to cut the corporate tax rate from 35 to 28 percent, putting himself in the ballpark of Mitt Romney’s plan, which would lower corporate rates to 25 percent.
The current nominal U.S. corporate tax rate — 35 percent — is the highest in the world behind Japan.
Rick Santorum, Ron Paul and Newt Gingrich would each make the statutory rate even lower — slashing it to 17.5, 15 and 12.5 percent respectively.
But behind the top line numbers and a consensus that corporate rates are too high, differences in the fine print (or lack thereof) suggest bipartisan reform isn’t going anywhere fast.
Cutting corporate tax rates as proposed will require significant offsets to avoid blowing a hole in the federal budget, experts say. None of the candidates has fully or specifically articulated details on how their plans might address this.
“Obama is being as disingenuous as the others by telling only the easy part of the story and not being willing to describe the hard part,” said Howard Gleckman of the Tax Policy Center.
“You’ve got to scratch your head and say, ‘how are you going to get there?’ This is one of those issues that sounds great at 20,000 feet — it’s terrific to say you’re going to do corporate reform and lower rates, but who’s going to bear the cost?”
The Obama administration claims it would “eliminate dozens of tax loopholes and subsidies” to cover the cost, including those for oil companies, hedge fund managers and private equity firms, but doesn’t list precisely which ones.
Officials also say they would impose a new minimum tax on foreign earnings and end special preferences for companies that move work offshore, netting $250 billion more from corporations over the next 10 years.
That some corporations would end up paying more in taxes than they do now is a non-starter for many Republicans.
The Republican candidates, none of whom has advocated widespread elimination of loopholes or subsidies, favor extending additional tax credits to corporations across the board. The offset would come on deep cuts in government spending, they say.
Romney advocates temporarily extending the investment tax credit and expensing allowance. He also favors a tax holiday for repatriation of foreign profits with an eventual elimination of the existing system.
Santorum also favors expanding the research and development tax credit from 14 to 20 percent and allowing all companies to fully expense investments in new equipment.
One tax policy priority that only Obama and Santorum have in common: special treatment in the corporate tax code for U.S. manufacturers.
Santorum wants companies that manufacture goods in America not to be taxed at all. Obama doesn’t go as far, but favors a special lower effective tax rate of 25 percent for manufacturers.
“Once again you have a situation where the government is picking winners and losers,” said Gleckman, who called the nod to manufacturers politically motivated.
“That’s terrible policy,” added Chris Edwards, a tax analyst with the CATO Institute. “Why should Microsoft have to pay a higher rate than Intel, who manufactures chips?”