Bloomberg View: A Modest Step Toward a Grand Bargain
President Barack Obama is taking yet another run at a grand bargain with Congress, conjuring images of the famous Peanuts gag 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 deal, this one is more modest. 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. 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.
By calling for a cut in corporate taxes and by paying for new spending with loophole-closing, Obama is borrowing Republican antitax, antideficit, anticorporate-welfare rhetoric. 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. 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.
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 plan is destined to become just another panel in an endless Peanuts cartoon strip—with the U.S. public playing the role of Charlie Brown.