Glenn Reynolds highlights this AP analysis of Barack Obama’s corporate-tax reform plan by writing, “Even the Associated Press isn’t buying this.” Obama claims to close a large number of loopholes in order to create a “level playing field.” However, the AP’s Christopher Rugaber discovers that Obama simply trades loopholes that favor those he dislikes for loopholes that suit his own purposes:
President Barack Obama wants to close dozens of loopholes that let some companies pay little or nothing in taxes. But he also wants to open new ones for manufacturers and companies that invest in clean energy.
To some analysts, the new loopholes risk upending the level playing field Obama says he wants to create.
Some also fear that companies could game the system to grab the new tax breaks.
You don’t say! That is, after all, the purpose of tax loopholes. Obama didn’t invent that novelty, but he certainly seems to enjoy using it. The biggest objection is Obama’s pious hypocrisy in his constant inveighing against loopholes while proposing even more — and it could be said that his stimulus gimmicks are nothing more than loopholes turned inside out.
One of the “loopholes” Rugaber points out is a slightly lower tax rate on manufacturers (25% as opposed to 28% overall), which isn’t so much a loophole as it is a two-tiered tax structure. Rick Santorum proposes a similar structure, but with a much different rate for manufacturers … zero. Some object to this in principle, as they don’t care the notion of government picking winners and losers, even on a meta scale. However, Obama’s lower rate for manufacturers is barely noticeable — and it is completely obliterated by this provision:
Other economists oppose a separate plank of the Obama plan: a minimum tax on foreign earnings of U.S. multinational companies. No other country imposes such a tax on its companies, they note. U.S. businesses would face a competitive disadvantage.
That would hammer the manufacturers who have facilities located overseas, more than the service providers who have to locate where service delivery occurs. That’s the point of Obama’s policy here — to punish manufacturers who build overseas rather than at home. However, a three percent rate difference is hardly enough to overcome the competitive disadvantages of building in the US, and the “global minimum tax” will make American products even more uncompetitive abroad by forcing prices higher. Remember that consumers pay business taxes, not the businesses, as all costs end up in the price of goods and services.
Rugaber is a little late to the loophole party. Veronique de Rugy noticed it immediately, as I noted in an Obamateurism from almost two weeks ago. Note that the new loopholes are hardly limited to “clean energy”:
Remember in the president’s State of the Union address how the line “no more bailouts, no more cop outs” was followed by proposals to do more bailouts? Well, President Obama continues this practice. His budget message derides “special-interest loopholes,” but then proceeds to provide more special-interest loopholes.
For instance, in addition to the tax credits that already exist in the budget, the president proposes 7 tax credits or cuts for families and individuals (such as an exclusion for student-loan forgiveness after 25 years of income-based or income-contingent repayment), 5 protectionist tax incentives (for expanding manufacturing and insourcing jobs, such as a new “manufacturing communities” tax credit), and 6 tax-relief provisions or investments to create jobs and jump-start growth (including 3 new ones, such as a 10 percent tax credit for new jobs and wages, and a tax credit for energy-efficient commercial buildings).
And then there are the tax credits for medium- and heavy-duty commercial vehicles that use alternative fuels, the energy incentives, the new-market tax credit, the designated growth zones, the tax-exempt bonds for Indian tribal governments, and much more.
The AP might not be buying Obama’s anti-loophole propaganda, but that doesn’t mean Obama isn’t buying and selling with these provisions.