July 31 (Bloomberg) -- U.S. President Barack Obama is taking yet another run at a grand bargain with Congress, conjuring images of the famous “Peanuts” cartoon, in which Lucy invites Charlie Brown to kick the football, then pulls it away at the last second. The question is: Who’s Lucy and who’s Charlie Brown?
Unlike earlier attempts at a deficit-cutting grand bargain, this one is more modest. Obama traveled to an Amazon.com Inc. distribution center in Chattanooga, Tennessee, to propose cuts in corporate taxes in exchange for increases in education and job-creation spending. It mostly repackages an 18-month-old corporate-tax-reform plan with numerous evergreen job-creation ideas. Some Republicans are openly laughing at it. Politically speaking, it may be about as likely as a Charlie Brown field goal.
That said -- and because ideas deserve to be assessed on their merits, if only for that brief moment between their preview on cable TV and their dismissal on Twitter -- do Obama’s proposals make sense?
The president would cut corporate taxes to 28 percent from 35 percent, with a rate of 25 percent for manufacturers. Bloomberg News reports that he would tap about $2 trillion in untaxed offshore earnings, possibly by giving companies a one-time-only low rate to encourage the repatriation of income, though the White House isn’t saying what rate it favors.
The president would also close loopholes that benefit special interests, including the oil-and-gas industry and private-equity firms. And entrepreneurs would get quicker write-offs on as much as $1 million in new investments.
Obama would pair all of that -- which would happily produce a one-time windfall in tax revenue -- with increased spending on highways, bridges and transit systems, dozens of new manufacturing institutes and community college job-retraining programs.
All of this is good as far as it goes. The president could have been more specific about the rate at which he would tax overseas income. A rate of 5.25 percent applied to all earnings held offshore by U.S. companies could generate as much as $105 billion.
He could also have supported a territorial tax system, in which corporate earnings are taxed in the country where they are earned. Almost all other advanced countries have adopted this, leaving U.S. companies at a disadvantage. The U.S. taxes worldwide income, but levies on overseas earnings can be deferred until the money is brought back to the U.S., encouraging multinationals to use elaborate strategies to show that their income wasn’t really earned in the U.S.
So much for the policy. As for the politics -- well, it’s complicated. By calling for a cut in corporate taxes, and by paying for new spending with loophole-closing, Obama is borrowing Republican anti-tax, anti-deficit, anti-corporate-welfare rhetoric. It also helps that Representative Dave Camp, the Michigan Republican who heads the House Ways and Means Committee, has been traveling with his Senate counterpart, Democratic Senator Max Baucus of Montana, to promote tax reform. Camp even had encouraging words for the president after his speech.
More broadly, it’s not hard to see Obama’s strategy: With its cuts in tax rates and narrowed loopholes, the plan is designed to appeal to a wide swath of corporate America, the small-business lobby and a large number of congressional Republicans who support cutting taxes and ending corporate welfare. And with its increases in public-works spending, the plan appeals to organized labor, the U.S. Chamber of Commerce and a large number of Democrats who support more stimulus spending.
And yet. Many Republicans don’t like any tax reform that isn’t “revenue neutral” -- that is, gives back any increased revenue to corporations in the form of lower rates. Gene Sperling, director of the National Economic Council, says the windfall isn’t large or lasting enough to sustain deeper rate cuts. For the long term, he says, the president favors legislation that is revenue neutral. Until the administration provides more detail, Republicans are unlikely to take him at his word.
The danger here, of course, is that neither congressional Republicans nor the White House trust each other. Both suspect the other is planning to pull the football away once their opponent commits to the game. If that’s the case, this speech is destined to become just another panel in an endless “Peanuts” cartoon strip -- with the U.S. public playing the role of Charlie Brown.
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