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Obama’s Business Tax Reform Plan Sends Mixed Messages, Nation’s Oldest Taxpayer Group Says

February 22, 2012
By Douglas Kellogg
By Pete Sepp

For Immediate Release


(Alexandria, VA) – With some helpful steps, more than a few harmful ones, and still others with an unclear impact, taxpayers are likely to be confused about the direction President Obama’s business tax reform plan hopes to take. That’s the assessment of the 362,000-member National Taxpayers Union (NTU) upon release of the President’s blueprint.

“President Obama calls his tax reform plan a ‘framework,’ but it appears to more closely resemble a ‘patchwork,’” said NTU Executive Vice President Pete Sepp. “Littered among worthy proposals to simplify the tax base and lower rates are some familiar, rewrapped political priorities from the Administration that would actually make the tax system more complex and burdensome.” Examples include:

  • Tax Rates – How Low They Could Go! The President laudably proposes a corporate tax rate reduction, from 35 to 28 percent, but the deficit reduction commission he himself created made recommendations for a rate of as low as 23 percent. Other bipartisan plans in Congress envision a rate of 24 percent. When combined with state levies, Obama’s proposed rate would still net out to more than 32 percent, higher than the European Union average.
  • A Less-than-Sharp Competitive Edge. The Administration shuns bipartisan calls to establish the commonly-practiced “territorial” tax system for business earnings abroad, opting to levy a potentially complicated new “minimum tax.” Meanwhile, the plan remains silent about one of the Tax Code’s worst complexity nightmares: the personal and corporate Alternative Minimum Tax.
  • Picking Winners and Losers. The Administration seeks to “eliminate all tax expenditures for specific industries,” with a “few exceptions.” One such “exception” would expand the domestic production activities deduction overall, but would deny the provision for oil and gas companies while giving “clean energy” producers an enhanced credit of their own. “This policy amounts to tax tinkering, not tax reform,” Sepp noted.
  • Revenue Neutrality? Not Likely. One key to the political success of the 1986 tax reform law was that it made no conscious policy decision to raise overall tax burdens (as opposed to reaping natural revenue gains from increased economic efficiency). Yet, the President’s tax proposal could mean billions in higher revenue and is offered alongside a budget plan to extract at least $1.6 trillion more from the economy over the next decade, often affecting both “C” corporations and “pass-through” entities that pay taxes via the 1040 form.

Sepp also observed that other contradictions are likely to reveal themselves as further details of the President’s tax package are offered. For instance, the White House’s tax reform blueprint seems to lament the rise of debt financing over equity financing in corporate America, yet its budget blueprint calls for increases in the dividend tax rate that industrial sectors reliant on equity capital – like utilities – have denounced.

“Businesses and individuals alike are seeking clarity and consistency, not mixed messages, when it comes to tax reform,” Sepp concluded. “President Obama has offered encouraging words about overhauling our nation’s Byzantine tax system, even as he speaks of plans that would throw this progress into reverse. Some Members of Congress have proposed desirable approaches of their own – such as a flat tax or Fair Tax – even as others would enact punitive changes to make matters worse. Pundits may be writing off the issue in this election year, but beleaguered taxpayers want the heavy lifting on tax reform to begin in Washington now, not in 2013. Is anyone, on either end of Pennsylvania Avenue, listening?”

The 362,000-member NTU is a nonpartisan, nonprofit organization working for lower taxes, smaller government, and economic freedom at all levels. More information on NTU’s work is available at www.ntu.org.