Obama's "grand bargain" with Obama

The problem, as ever, is that Mr. Obama simply can’t get over his ideological fixation to keep tax rates as high as possible. We say “ideological” because his own advisers concede that a 35% rate hurts U.S. business competitiveness. Even Japan, the last high-rate holdout among rich countries, is cutting its corporate rate. But recall the famous moment in the 2008 campaign when then Senator Obama was asked by ABC’s Charlie Gibson if he would support higher capital gains tax rates even if they raised less revenue than lower rates. Mr. Obama said yes.

On Tuesday, Mr. Obama at least conceded the need to transition “to a simpler tax system” for corporations. But his plan is to take the headline corporate tax rate of 35% down to only 28% for most companies, while eliminating deductions and creating a new minimum tax on foreign earnings so that corporations will actually pay a higher tax bill. The White House says that manufacturers will pay an effective tax rate of “no more than 25%,” but that is also likely higher than the effective rate many of them are paying now.

These columns certainly favor a simpler tax code, but compliance is merely one cost of our tax system. The bigger cost is money owed to the Treasury. Reducing the first while raising the other is not a game-changer for U.S. business or for economic growth.

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