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December 12, 2012

Corporate Tax Reform Dropped Into Fiscal Slope Negotiations

Posted in: Uncategorized

John Engler

Obama hopes Business Roundtable's John Engler and CEOs will pressure Boehner into a deal in exchange for lower corporate taxes

My sense in this negotiations is that, if numbers and policy positions are leaking, the two sides are very far apart on a deal. And yesterday we had a lot of leaking, at least on the Republican side.

Here’s what we know. The White House sent a counter-offer to House Speaker John Boehner, one which lowered the revenue target from $1.6 trillion to $1.4 trillion, and which also included a reform of the corporate tax code, presumably of the “lower the rates, broaden the base” style. The Administration has long sought a corporate tax reform, as has probably every one of the many CEOs the President has met with since the election.

If this were a substitute for spending cuts, it would be a frustrating but acceptable trade. It’s amusing to me that these CEOs walked one by one in to meet the President, supposedly out of concern for the nation’s deficit and legacy of debt, and the strongest thing they could come up with was “lower my tax rates.” I think this quote is pretty telling:

“Start at wiping out all of the deductions, figuring out where that tax rate is—whether it’s 25%, 22%, 15%, whatever it is,” said Douglas Oberhelman, the chief executive of construction-equipment maker Caterpillar Inc. “I think all of us are on that wavelength today to begin the process.”

Yeah, NOBODY in the White House has ever proposed a rate as low as even 25%, much less the other numbers. And this obviously has nothing to do with deficit reduction.

But we have a captured government, and if we can swap reducing corporate tax rates for social insurance cuts, I’d take the trade. Unfortunately, I don’t think that IS the trade; I think the White House added the corporate tax piece into the negotiations so that they could get business groups to pressure Boehner on the other points, especially raising individual tax rates. John Engler of the Business Roundtable dutifully carried that out yesterday. So it’s probably a free throw-in.

Boehner responded with his own counter-offer, the content of which has not been revealed, though through a spokesman he described it as “not dramatically different” from previous offers. More importantly, Boehner went to the House floor and whined about the lack of specifics in spending cuts in the White House offer. This is a familiar dance. Boehner wants the President to own both sides of the negotiation, while the White House wants Boehner to be specific on what kind of cuts he wants to the safety net in particular.

The Administration also feels the economy needs stimulus, and have included it in every offer they have delivered to Republicans. Given the recent economic indicators, they’re probably right to include some near-term spending.

While I do not believe the US economy is in recession by any stretch of the imagination, I am under no illusions about the lack of underlying momentum. Slow and steady, in my opinion. But slow also means more vulnerable; there was more room to absorb an external hit in the late 1990′s than today. Which again leaves me wary about the impact of tighter fiscal policy, and I am not alone.

Sadly, stimulus seems like a blind corner for Republicans as well.

I pretty much agree with Brian Beutler on the state of the negotiations. The tax side of this probably gets done, with the House passing the Senate bill and rates going up above $250,000. But both sides at this point feel that have something to gain by going down the slope, through January 1, on the other issues. The dealmaking may not begin until then.

Photo by cagrimmett under Creative Commons license

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