Obama: Lower Corporate Tax Rate to 28 Percent, Close Loopholes

General Electric - photo by @mjb

Today President Obama proposed lowering the corporate tax rate to 28% from 35%, which is the second highest in the world behind Japan, although that doesn’t reveal the entire picture. Because of tax loopholes, the effective tax rate for many corporations is only in the single digits, and in the case of General Electric, as low as zero.

In exchange for lowering the rate to 28%, Obama wants to close loopholes that have allowed some companies, like G.E., to effectively pay little or no tax. It is certain there will be a major lobbying effort by corporations to support the status quo. Yes, they would like to see the corporate tax rate lowered but they also want to keep their lobby-generated perks as well.

The 35% tax rate is mosly a facade when it comes to large and powerful corporates. It’s the smaller companies that wind up paying that rate, which is a regressive tax system if you ask me. All the profits that G.E. made while paying no corporate tax allows them to employ an army of lobbyists with the sole purpose of allowing the same thing to happen year-after-year.

One loophole that Obama would like to close is the ‘carried interest’ loophole that allows some income to be classified as capital gains and therefore taxed at the lower 15% capital gains rate. My proposal instead would be to tax capital gains (which is income generated by existing wealth) at a rate equal to or higher than the top earned income tax rate, which is now at 35%. That would be a better solution. For example, most of Mitt Romney’s income is generated from his existing wealth and taxed as capital gains. Why should income from wealth be taxed at a lower rate than income from hard work? It makes no sense, that is, unless you are rich.

But this proposal is a step in the right direction. Too bad in an election year there is little chance of it becoming law, which is an entire issue to be addressed unto itself.


photo by @mjb via Flickr


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