With Record High Profits, President Obama Offers to Cut Corporate Taxes!
By Michael McGehee at Feb 27, 2012
President Obama will ask Congress to scrub the corporate tax code of dozens of loopholes and subsidies to reduce the top rate to 28 percent, down from 35 percent, while giving preferences to manufacturers that would set their maximum effective rate at 25 percent, a senior administration official said on Tuesday.But why?
Republicans and business groups complain that the 35 percent corporate tax rate is among the highest in the world, leaving American companies at a competitive disadvantage. They typically seek a 25 percent rate, with many of them saying that the current tax breaks should be kept in place as well.If the corporate tax rate was such a "competitive disadvantage" then one must wonder three things:
- Why does the U.S., by far, have the world's largest economy?
- Why are U.S. corporations experiencing record profits (during the so-called Great Recession)?
- Why are American CEO's, by far, making the most money?
But there is more to it than that. At a time when our debt is piling up, how can it possibly make sense to reduce our stream of revenue? If I owe X amount in bills, and bring in Y amount in revenue, then reducing Y is not a sound idea. I can only imagine what my wife would say if I came home with a smile on my face and announced, "Good news: I took a paycut!"
In 1982 the corporate tax rate was 49.699%, however our debt as percentage of our GDP was only 29.5%. Right now the corporate tax rate is 35%, though our debt is 67.8% of our GDP. Again, when bills are piling up it is not a good idea to reduce your revenue, and the idea that it is to be competitive is without merit, because as noted, we have the world's largest economy, are experiencing record profits, and apparently can afford to pay CEO's hundreds of times the average worker salary, which is astronomical when compared to other developed economies we are supposedly trying to be competitive with.
However, the Times reports that "an overhaul of the corporate code is unlikely this year, given that political backdrop and the complexity of an undertaking that would generate a lobbying frenzy as businesses vie to defend old tax breaks or win new ones."
We can interpret this a number of ways. On one hand, the proposal is a campaign stunt by President Obama to move further to the right and get the blessings from traditional Republican business interests, thus increasing his chances of getting re-elected. On the other hand, while Obama has also proposed "a minimum tax on multinational corporations’ foreign earnings, the official said, to discourage 'accounting games to shift profits abroad' or actual relocation of production overseas," there is a good chance that this won't happen (remember the "public option"?) since such "an undertaking that would generate a lobbying frenzy as businesses vie to defend old tax breaks."
The Times reports another gold nugget related to the above proposal: "Corporate taxes make up an increasingly small share of the federal government’s revenue, in part because of tax-avoidance maneuvers by businesses."
From the Chicago Sun Times last year (this is worth quoting at length):
1) Exxon Mobil made $19 billion in profits in 2009. Exxon not only paid no federal income taxes, it actually received a $156 million rebate from the IRS, according to its SEC filings.Clearly lowering the tax rate is unnecessary since so many not only don't pay, but get millions back!
2) Bank of America received a $1.9 billion tax refund from the IRS last year, although it made $4.4 billion in profits and received a bailout from the Federal Reserve and the Treasury Department of nearly $1 trillion.
3) Over the past five years, while General Electric made $26 billion in profits in the United States, it received a $4.1 billion refund from the IRS.
4) Chevron received a $19 million refund from the IRS last year after it made $10 billion in profits in 2009.
5) Boeing, which received a $30 billion contract from the Pentagon to build 179 airborne tankers, got a $124 million refund from the IRS last year.
6) Valero Energy, the 25th largest company in America with $68 billion in sales last year received a $157 million tax refund check from the IRS and, over the past three years, it received a $134 million tax break from the oil and gas manufacturing tax deduction.
7) Goldman Sachs in 2008 only paid 1.1 percent of its income in taxes even though it earned a profit of $2.3 billion and received an almost $800 billion from the Federal Reserve and U.S. Treasury Department.
8) Citigroup last year made more than $4 billion in profits but paid no federal income taxes. It received a $2.5 trillion bailout from the Federal Reserve and U.S. Treasury.
9) ConocoPhillips, the fifth largest oil company in the United States, made $16 billion in profits from 2007 through 2009, but received $451 million in tax breaks through the oil and gas manufacturing deduction.
10) Over the past five years, Carnival Cruise Lines made more than $11 billion in profits, but its federal income tax rate during those years was just 1.1 percent.
To their credit the Times do report that "the administration and Congress would have a political and mathematical challenge in eliminating or reducing tax breaks enough to lower corporate rates as they propose to do without adding to deficits," and that, "For tax purposes, however, the administration would have a challenge in defining manufacturing to determine what companies would benefit from a lower rate." But much of the information I cover above is missing, though certainly relevant. Again, this looks more like a campaign stunt to push the Democrats even further to the right, so as to ensure President Obama's re-election. If Obama does get re-elected the past four years tells me he will more likely get the tax rate lowered while quickly giving up on closing the loop-holes.
We need to remember that both parties are essentially right-wing political parties, in that both serve business interests over the general population (i.e. the poor, disabled, working class, and retired). Traditionally the Republicans have represented the labor-intensive industries—i.e. the same manufacturing industries Obama is trying to appeal to with his proposal to cut taxes to no more than 25%—while the Democrats have traditionally represented the capital-intensive industries—i.e. banks and media. Neither party runs on a social, or working class platform, and it shows with the general public having very unfavorable views of both parties, and especially Congress as an entity. Available public opinion polls also shows the American people are very much aware that government is considerably more influenced by business than labor. That Obama is pushing further into Republican territory should be a warning sign of what's to come.To read more of my blogs please visit www.truth_addict.blogspot.com