A Tax Obama and Republicans Can Agree On


Republicans will blow the 2016 presidential election unless they can prove, over the next two years, that they can govern. (It's not just oracular editorial boards saying that; their own leaders are, too.) So how do they prove they can?

One possible answer, besides immigration reform: Focus on corporate taxes and trade -- that is, lowering the former and increasing the latter. On both fronts, Republicans and President Barack Obama have enough common ground that, with some coaxing and compromising, they could actually move legislation.

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With a Republican Congress, Washington's new political calculus should favor a trade deal, and not just because pro-free-trade Republicans will have strengthened their hand post-election. If they want to claim credit for speedier growth, Republicans should seize the opportunity to approve the Trans-Pacific Partnership -- a free-trade zone encompassing almost 800 million consumers and 40 percent of the global economy. Negotiations between the U.S. and 11 Pacific Rim countries are in the final sprint. Twelve trade ministers on Monday completed talks to set the final-round agenda, which includes some of the most difficult issues.

So it would make sense for Congress to grant Obama trade-promotion authority, which would let him submit the treaty for a straight up-or-down vote. Without it, the U.S. trade representative negotiates from weakness: Other countries aren't inclined to accept terms Congress might undo. In short, no fast-track legislation equals no trade deal equals no economic booster shot.

On taxes, Republicans might find inspiration from Representative Dave Camp, the soon-to-retire Michigan Republican who made this year's most ambitious run at tax reform. The entirety of his proposal stands about as much chance in the next Congress as it did in the current one, where Camp's own party allowed it to die quietly. But its corporate-tax provisions are close enough to Obama's that they could be a starting point.

U.S. corporate taxes are shambolic. The 35 percent top rate is twice the 17 percent rate the rest of the industrialized world charges, on average. Obama and Camp would fix this by lowering the top rate -- the president to 28 percent, Camp to 25. Both would trim the tax code of a multitude of special tax breaks to make up for any revenue loss.

Choosing between 25 and 28 shouldn’t be too hard -- 26.5 percent, anyone? -- and such an agreement would count as a monumental achievement, especially by current congressional standards. The ideal would be to have a territorial system, taxing only earnings made within the U.S., but getting there is far more difficult.

There may well be more a Republican Congress could do, including luring home about $2 trillion in corporate profits parked offshore with a special low rate. That would result in a one-time windfall of about $150 billion in corporate tax revenue. But then Republicans almost certainly would fall into familiar arguments about how to spend the money. Better to keep the initial reform simple -- not to be confused, of course, with easy.

No one has ever gone broke underestimating the ambition of Congress, or the ability of just a few members to bring it to a standstill. But this agenda should appeal to Republicans who favor tax cuts and a president who opposes corporate welfare, not least because it cuts taxes and reduces corporate welfare. Greater trade and job growth, meanwhile, have a broader appeal still -- to corporations and middle-class wage earners.

--Editors: Paula Dwyer, Michael Newman.

To contact the editor on this story:
David Shipley at davidshipley@bloomberg.net