An editorial in the latest Bloomberg Businessweek takes President Obama to task for his corporate tax policy.
A higher corporate tax rate makes it cheaper to do business overseas, encouraging companies to send jobs abroad. What’s more, higher taxes are largely passed on to U.S. workers and consumers in smaller paychecks and higher prices.
The Obama administration claims to understand this. Yet its latest budget, which projects a $901 billion deficit in fiscal 2013, perpetuates the clumsy way the U.S. has tried for decades to reduce the overall tax rate with ever more credits and deductions. The budget encourages manufacturers, for example, to invest in the U.S. by proposing new deductions for companies that stay onshore and new credits for those investing in hard-hit communities. …
… The bigger problem is that tax credits rarely drive corporate behavior, especially decisions as important as a facility’s location. Economists say other factors, including wages, availability of skilled labor, and proximity to customers, carry more weight and that the Obama tax changes would probably be marginal at best.
The tax proposals in the White House’s budget seem designed more for political advantage than to put forward the best policy. Obama officials hint that a corporate tax overhaul may come later this year—something they’ve predicted in the past, only to back away. Before asking voters to give him a second term, Obama needs to show how he would fix a fractured system.
Roy Cordato might offer a simple alternative: Scrap the corporate income tax completely.
