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Obama: Overhaul the Corporate Tax Code

As part of his broader effort to bring down the deficit and win support from both parties for his budget proposal, President Barack Obama pledged not only to work to rein in entitlements like Medicare and Medicaid, but also, according to The Wall Street Journal,  “overhaul the tax code to root out ‘spending embedded’ in it—a reference to tax breaks.”

Associated Press

Meanwhile, Treasury Secretary Timothy Geithner “reiterated an administration call for corporate-tax changes that eliminates loopholes and reduces the overall rate companies pay.”

It’s partly a shot at the corporate tax rate–which on the surface seems to be quite high, but in reality is so full of loopholes that many corporations ultimately pay very little in taxes. US News & World Report blogger Susan Milligan–echoing Tax Guy Bill Bischoff–says lowering the corporate tax rate isn’t really the answer. It’s true that many U.S. companies pay significantly lower effective rates than the official top rate, but many tax experts say it’s still high enough to be a drag on domestic investment.

Still, closing the loopholes is far more critical, argues Milligan, who says, “Lowering the corporate tax rate would cost jobs. Mind you, the job loss would not be among those sad grunts now pictured in newspapers, signing up for unemployment benefits. No, the new unemployed would be the well-paid tax attorneys who scour the tax code for loopholes. They would be followed in the unemployment line by the lobbyists who bustle around Capitol Hill fighting to keep those loopholes.”

As Bischoff wrote earlier, if anything, fixing the corporate tax code would do a lot to create jobs in the U.S. since there’d be less incentive to move work overseas and could boost business overall.

But Washington insiders say it all amounts to tax increases. And according to WSJ, proposed tax increases for businesses and high earners that play a big role in the president’s budget outline have a slender chance of passing Congress this year. Says the story: “Of particular concern to some business groups was the proposal to raise taxes on multinational corporations by $129 billion over the next decade. The president had included the idea in his 2011 budget, but most of it was never enacted.”

And, of course, taxpayer advocate Nina Olson chided the complicated code, calling it one of the top three problems taxpayers face.

That’s a lot of reform being proposed, demanded and hoped for. And plenty of politics and partisanship standing in the way of any moves to change entitlements, loopholes and other benefits companies and individuals would be loathe to give up.

Readers, what are the odds for real tax code reform? What do you believe is most likely to go from proposal to reality this year? Next year?

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    • Wow, that is some serious hypbreole! First, these slight changes in the economics of oil will simply give taxpayers the money they have deserved for a long time.Second, this in no way will eliminate the domestic oil and gas industry , that is simply inaccurate.Third, If renewables get the same economic push now that oil got back in its heyday, then we could be solar powered in no time flat. Even if we simply put the royalty money straight to buying panels to power gov’t buildings.

    • I agree there needs to be tax reform. When 50% of the pulibc pays no taxes, that is a problem. If we could lower the top rate and broaden the base, cut corporate subsidies (especially boondoggles like ethanol), and then reform entitlements, I think we can get there. We need a growing economy to make the numbers work, but we also have to cut government spending, and that is hard to do when so much of the pulibc pays no taxes. When we hammer the over $250,000 per year people with higher taxes, we hit small businesses that are sole proprietorships. Job creation is our problem; job destruction is what the current administration produces with its heavy-handed approach to regulation, endless extended unemployment benefits, and crazy health care schemes. Why is all of the money on the sidelines? Because we hammered the small banks with Dodd-Frank while leaving Fannie Mae and Freddie Mac untouched. We bailed out car companies and Wall Street, and used stimulus to pave roads that didn’t need paving, initiated Cash for Clunkers, Dollars for Dryers and other kooky ideas, and drove ourselves into unsustainable debt. We need a new president, and then a fresh, thoughtful approach to deficit reduction and economic growth. Sorry academia, the last presidential election will go down as one of the most profound blunders the American voters have ever made.

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About The Tax Blog

  • The Tax Blog brings together a team of award-winning tax journalists from the Dow Jones network and around the web to examine the tax issues, changes and legislation that affect families, investors and small business owners. Our contributors include Tax Report columnist Laura Saunders (WSJ), Tax Guy columnist Bill Bischoff and senior reporter Jilian Mincer (SmartMoney.com), retirement-focused reporter Anne Tergesen (WSJ), wealth management writer Arden Dale (Dow Jones Newswires), TaxWatch columnist Eva Rosenberg and personal finance reporter Andrea Coombes (MarketWatch), and reporter Alyssa Abkowitz (SmartMoney). They’ll provide the latest news and insight, mine the tax code for tips and loopholes, and answer your questions about tricky tax situations. Contact the The Tax Blog with ideas, suggestions or tax questions at thetaxblog@dowjones.com.

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