The Obama administration has a new corporate tax plan that is sensible, supported by both parties and sure to fail. Welcome to election-year politics.
Today, Treasury Secretary Tim Geithner will outline a plan to reduce the corporate tax rate to 28 percent from 35 percent while increasing revenues by eliminating deductions and loopholes in the tax code. It's something the business community has long-clamored for as the U.S. is home to the one of the highest corporate tax rates in the world even though many companies circumvent it thanks to a byzantine system of loopholes.
Taking the talking points of Republicans and Democrats at face value, you'd think the legislative proposal would sail through Congress. "Republicans and Democrats have expressed broad support for a tax strategy that reduces rates across the board while eliminating special interest loopholes," reports The Washington Post. "Economists across the political spectrum generally agree that the U.S. corporate tax rate is too high and that it hurts American competitiveness." reports Politico. "Everyone agrees on the basic principle of lowering rates in exchange for eliminating loopholes," says Dean Baker, co-director of the Center for Economic and Policy Research.
But just in time to to rain on the president's legislative parade, comes a report from Reuters: "Even if Geithner floats something and members of both parties say they're interested, I simply cannot see a reform bill passing before the election, close to a zero percent chance," says Greg Valliere, analyst at Potomac Research. "Something this huge and complex will require a thorough vetting, and that could take a year -- or much longer." The Associated Press also notes that "Chances of accomplishing such change in the tax system are slim in a year dominated mostly with presidential and congressional elections."
Then again, maybe that's playing directly into the president's hand, since the proposal is undoubtedly an arrow in his electoral quiver. "For Obama, the proposal is part of a larger tax plan that is central to his re-election strategy," reports the AP. You can even hear evidence of the bill's impending failure in the administration's statements acknowledging the uphill task.
“While there are plenty of naysayers and conventional wisdom says that corporate tax reform is too heavy a lift, it’s the judgment of the administration that there should be more common ground on this compared to other issues," an official said. Not what you'd call a resounding call to action.
Beyond that, you've got the explicit remark that this is about "starting the conversation"—a rather passive mission statement. “The administration believes that the president’s framework lays an important foundation and that the conversation ahead is a good one to have," the same official said. With Mitt Romney's stump speech calling for a 25 percent corporate tax rate, as opposed to Obama's new 28 percent tax rate, expect this 3-percent gap to constitute the essence of this debate. Gee, that sounds like a fun conversation.