Minnesota's I-35 bridge, which collapsed in 2007 and killed 13, photo from
President Obama spoke about two of my favorite topics today, transportation and tax reform. And though vague, the proposals are solid. The two pillars, and essentially the "grand bargain" the president is looking for, is
and fewer loopholes. Republicans generally aren't opposed to infrastructure spending in principle (
), and they're certainly in favor of lower corporate taxes, but they're still saying things like "[Obama] might call his plan a grand bargain. But I call it a raw deal." What's the deal?
There are a few issues, but as far as I can tell, this really comes down to a desire for "revenue neutral" tax reform*. The president's proposal isn't revenue neutral—it would increase the amount of corporate income tax collected even as it lowered rates. But that's a silly argument in this case. Now is a terrible time to do revenue neutral corporate tax reform. It might be desirable for some types of taxes, including personal income and sales taxes, but not corporate taxes.
Here's why. First, this graph of corporate income taxes as a share of GDP (credit to
Corporate tax as a share of GDP.
As you can see, that share hovered around 4% in the 1960s, 3% in the 1970s, and 2% ever since. Right now it's somewhere around 2.3%. Why we should want to hold the relative contribution of corporate income taxes to its lowest stable level in the past 60+ years isn't clear to me, but I can imagine the case John Boehner might make. Whatever he might come up with, however, completely falls apart in the face of the following graph:
Corporate tax as a share of corporate profit.
This is corporate taxes as a percent of corporate profit, currently at just about it's lowest level ever, and half what it was just 15 years ago. The corporate contribution to the federal budget has remained low not because they've been doing poorly, but because they've been steadily chipping away at the rate they pay—less than a third of what it was 40 years ago.
The White House wants to ensure that
—businesses that dodge their taxes by mostly legal practices, I hasten to add—pay their fair share while smaller businesses (without the lobbying clout of international corporations) pay 20% less. This would indeed increase the total tax burden on US corporations, but almost exclusively on the backs of those exploiting ridiculous and unjustified loopholes. We could put that money to use repairing bridges and roads, building better facilities for pedestrians, bicyclists, and transit, and improving our freight and passenger rail network. Instead,
This is a win/win proposal; unfortunately, many in the GOP are dismissing it out of hand. Their objection, at heart, is that they believe the pinnacle of American corporate tax-dodging is the perfect time to cap the amount raised by corporate taxes. They're willing to hold our nation's infrastructure and its small- and medium-sized businesses hostage to that ideal. I doubt many American citizens would agree with them.
*They also cite concerns that small businesses paying taxes through the individual income tax will be at a competitive disadvantage, but this argument is even more ridiculous. One reason is
(or that we should hold up national reforms on behalf of these few well-off people). The second reason because there is zero chance of the individual tax rates being lowered at top income levels right after Obama raised them less than a year ago. If that's going to be the Republican objection to any fiscal issues the country faces, we might as well pack it all in right now.