The Obama administration, seeking to promote domestic manufacturing without increasing the federal deficit, proposed on Wednesday to offset new tax breaks for manufacturers by raising taxes on a wide range of other companies.
Some of the prospective losers are familiar targets, including oil and gas companies, private equity firms and companies that move jobs overseas. The proposal would also roll back provisions that benefit a range of other companies, including Menards, the Midwestern home improvement chain; Brown-Forman, which distills Jack Daniel?s; and Duke Energy, of North Carolina.
Some manufacturing firms could face higher taxes, too, because they are major beneficiaries of those same provisions. Over all, the plan seeks to reduce the share of profits manufacturers pay in federal taxes from an average of 26% in 2007 and 2008 to a maximum of 25%.
The White House provided few details on Wednesday, and most concerned the proposed reductions rather than the offsetting increases, thwarting detailed analysis. The administration introduced its overhauls of financial regulation and health care in the same way. But the high-concept approach also reflects that Wednesday?s announcement was a campaign event. There is little chance that a divided Congress, its attention focused on November, will overhaul the corporate tax code this year.
Republicans agreed with the goal, but not the particulars. The headline goal of the proposal is to cut the highest official tax rate for all corporations to 28% from 35% ? without reducing federal revenue. A wide range of economists, and policy makers in both parties, say such a change would distribute the burden of taxation more fairly and reduce the warping influence of the tax code on investment decisions. The government estimates that companies spend $40 billion each year figuring out how much they owe in taxes, and considerably more figuring out how to reduce that number.
Among the options outlined by the White House in a 25-page paper: taxing large businesses that currently avoid paying any taxes by organising as partnerships.
The government has long allowed businesses to organise as partnerships, which avoid corporate income taxes by ?passing through? the profits to the partners. But what began as a shelter for small businesses, the so-called subchapter S partnerships, has increasingly attracted very large ones, including Menards, the mutual fund giant Fidelity and the huge engineering firm Bechtel.
The provision lets firms calculate profits based on their current costs, rather than the prices they actually paid in the past. This is particularly valuable for companies that make things slowly.
The top corporate tax rate of 35% is a theoretical marker. Corporations actually paid an average of 26% of income in federal taxes in 2007 and 2008, according to the treasury department.