BusinessWeek: White House Prepares Corporate Tax Increase

By January 25, 2010Economy, Taxation

With the newly populist President Obama expected to address budget deficits at Wednesday’s State of the Union address, Jane Sasseen of BusinessWeek previews the White House’s planned push for tax increases on U.S. employers. From “Taxes: Ready to Rumble“:

The budget deficit, bloated by the costs of President Barack Obama’s stimulus plan and the sharp fall in tax receipts due to the recession, will hit $1.4 trillion in fiscal 2010, for the second year running—more than twice what it was in 2008. If Obama sticks to his pledge to keep the Bush tax cuts for families earning less than $250,000 a year, the move will add a projected $230 billion a year on average to the deficit over the next decade.

That leaves only one viable source for the hundreds of billions in extra tax revenue needed to sponge up all that red ink. With his Jan. 14 proposal to raise up to $117 billion through a levy on the nation’s largest financial institutions, Obama took a stab at increasing corporate taxes. It won’t be the last. “The pressure to raise more from the business sector will only intensify,” says Anne N. Mathias, a tax policy analyst for the Washington Research Group. Few expect the Democrats to push hard for a big corporate tax hike before midterm elections, and the prospects for boosting any taxes just got a lot harder with the Democrats’ stunning loss in Massachusetts. Yet Mathias and others believe the risks of a squeeze on companies will rise sharply by yearend, when Congress and the President will have to extend the Bush tax cuts for the middle class before they expire.

Sasseen provides more detail on the kind of taxes the White House is expected to pursue, provisions that will be included President’s proposed FY2011 budget released in February.

The problem, however: Tax increases are incompatible with U.S. global competitiveness.

See The Tax Foundation’s Fiscal Fact from August 2009, “U.S. Lags while Competitors Accelerate Corporate Income Tax Reform.”

New data from the Organization for Economic Cooperation and Development (OECD) shows that the U.S. corporate tax rate has fallen even further out of step with the rest of the industrialized world as countries such as Canada, the Czech Republic, Korea, and Sweden have cut their corporate rates in 2009, lowering the average statutory corporate tax rate of all OECD nations to 26.5 percent.

With a combined federal and state corporate tax rate of 39.1 percent, the U.S. continues to impose the second-highest overall corporate rate among industrialized countries.

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