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Obama Administration proposes corporate tax overhaulFollow

#1 Feb 22 2012 at 11:03 AM Rating: Excellent
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Reuters wrote:
Feb 22 (Reuters) - The Obama administration on Wednesday proposed overhauling the U.S. corporate tax code by slashing the top rate to 28 percent from 35 percent while eliminating popular deductions that many businesses now use to reduce their taxes.


Even if this is not the final plan that gets put into play, which it certainly will not be, it's a good starting point for the discussion.

Edit: Quote fail...

Edited, Feb 22nd 2012 12:04pm by catwho
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#2 Feb 22 2012 at 11:05 AM Rating: Excellent
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What discussion? Side A will hail it as the Second Coming, and Side B will hail it as the coming of the Anti-Christ, while nothing actually gets done.
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#3 Feb 22 2012 at 11:09 AM Rating: Excellent
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lolgaxe wrote:
What discussion? Side A will hail it as the Second Coming, and Side B will hail it as the coming of the Anti-Christ, while nothing actually gets done.
Almost as good as watching monkeys throw ***** at one another.
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#4 Feb 22 2012 at 11:12 AM Rating: Excellent
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In theory, the GOP should support this. Even if they have to save face with the usual "It doesn't go far enough and it was my idea anyway", they should at least be behind the premise.

Edit: The timing on this was no doubt decided to step on the toes of Romney's upcoming tax policy speech.

Edited, Feb 22nd 2012 11:15am by Jophiel
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#5 Feb 22 2012 at 11:17 AM Rating: Excellent
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Honestly, it will make for great tv as the GOP tells us why reducing taxes is bad for America.
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#6 Feb 22 2012 at 11:21 AM Rating: Excellent
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In before 'net tax increase' and 'poison pill.'

Smiley: rolleyes
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#7 Feb 22 2012 at 11:27 AM Rating: Excellent
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I'll raise you a "Small business tax increase", and a "Job killer".
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#8 Feb 22 2012 at 12:34 PM Rating: Decent
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I can't wait for Gbaji to come in and tell us why its bad to reduce taxes on Americans, and close loopholes for tax evasion.

Edited, Feb 22nd 2012 1:34pm by rdmcandie
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#9 Feb 22 2012 at 12:38 PM Rating: Decent
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I love all the preemptive knee-jerk gbaji/GOP hating going on in here. It's so cute to watch you all work yourselves into a tizzy over... nothing. Smiley: laugh
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#10 Feb 22 2012 at 12:45 PM Rating: Good
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Timelordwho wrote:
I'll raise you a "Small business tax increase", and a "Job killer".


My money is on "Job killer" or the dark horse "hurts job creators".

#11 Feb 22 2012 at 12:45 PM Rating: Decent
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Demea wrote:
I love all the preemptive knee-jerk gbaji/GOP hating going on in here. It's so cute to watch you all work yourselves into a tizzy over... nothing. Smiley: laugh


I love how Naive you are when it comes to how the mentality of the politic stage works.

A. The GOP say this is a great idea and put support behind the incumbent president, leaving the future GOP candidate treading water.

B. The GOP oppose the idea, thus taking a stance that reducing taxes on americans is a bad thing, or admitting support for loopholes that allow businesses and investors the ability to avoid paying the tax they should be is a good thing.

Pretty cut and dry, option A is out the window as the GOP won't put support behind a democrat president in an election year, as for Gbaji, we all know how much he likes to parrot party talking points.


All in all, pretty fail proof political barrage by Obama, GOP is damned if they do damned if they don't.
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#12 Feb 22 2012 at 12:48 PM Rating: Excellent
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Demea wrote:
I love all the preemptive knee-jerk gbaji/GOP hating going on in here. It's so cute to watch you all work yourselves into a tizzy over... nothing. Smiley: laugh


With Varus gone, one must create their own drama. Smiley: lol

Edited, Feb 22nd 2012 1:48pm by Dozer
#13 Feb 22 2012 at 1:13 PM Rating: Excellent
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Demea wrote:
I love all the preemptive knee-jerk gbaji/GOP hating going on in here. It's so cute to watch you all work yourselves into a tizzy over... nothing. Smiley: laugh


Okay, well when Romney releases his plan I predict much "raising the burden on suffering middle-class families" "trickle-down never works" and perhaps a little "gutting life-saving medical care for seniors."
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#14 Feb 22 2012 at 1:23 PM Rating: Excellent
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Demea wrote:
I love all the preemptive knee-jerk gbaji/GOP hating going on in here.

Now everyone can hate on them post-emptively!
The Hill wrote:
But while the White House said it hopes the framework will be, in effect, a way to jumpstart the conversation on tax reform, the administration’s proposals were quickly panned by some industry groups — and Republicans on Capitol Hill.

"Genuine tax reform is necessary, and should be about creating a fairer, flatter code," a spokesman for Senate Minority Leader Mitch McConnell (R-Ky.) said in a statement. "Republicans are focused on proposals that would create a better overall environment for job and economic growth, but we hope the administration and Senate Democrats will work with us on behalf of the American people rather than insisting on a political approach that guarantees failure."
The Hill wrote:
The plan would cut corporate tax rates to 25 percent, down from the current 35 percent, one of the highest rates in the world. Obama's newly-released proposal calls for a 28 percent rate.

Romney attacked Obama's plan in his speech.

"He's raising taxes by hundreds of billions of dollars," he said. "Raising taxes will kill jobs. my plan will create jobs, that's the difference between the two of us… I don't think he understands the power of free people and free enterprises, following their own course in life. I do."


Edited, Feb 22nd 2012 1:23pm by Jophiel
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#15 Feb 22 2012 at 1:33 PM Rating: Good
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Demea wrote:
I love all the preemptive knee-jerk gbaji/GOP hating going on in here. It's so cute to watch you all work yourselves into a tizzy over... nothing. Smiley: laugh

If it keeps gbaji from having to actually post fifty thousand chars about nothing, then it's worthwhile. But, like the Juggernaut, there really isn't any stopping it.
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#16 Feb 22 2012 at 2:07 PM Rating: Default
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Debalic wrote:
Demea wrote:
I love all the preemptive knee-jerk gbaji/GOP hating going on in here. It's so cute to watch you all work yourselves into a tizzy over... nothing. Smiley: laugh

If it keeps gbaji from having to actually post fifty thousand chars about nothing, then it's worthwhile. But, like the Juggernaut, there really isn't any stopping it.

At least gbaji centralizes the right-wing partisan blather in one place. With the peanut gallery of bleeding hearts around here, it's death by a thousand papercuts and pony gifs.
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#17 Feb 22 2012 at 3:01 PM Rating: Excellent
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#18 Feb 22 2012 at 3:34 PM Rating: Excellent
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Jophiel wrote:
The Hill wrote:
The plan would cut corporate tax rates to 25 percent, down from the current 35 percent, one of the highest rates in the world. Obama's newly-released proposal calls for a 28 percent rate.

Romney attacked Obama's plan in his speech.

"He's raising taxes by hundreds of billions of dollars," he said. "Raising taxes will kill jobs. my plan will create jobs, that's the difference between the two of us… I don't think he understands the power of free people and free enterprises, following their own course in life. I do."


Edited, Feb 22nd 2012 1:23pm by Jophiel


I love how republicans continue to espouse the whole "closing tax evasion loopholes means raising taxes!" bullsh*t. It's only raising taxes if you were unfairly using said loopholes in the first place, in which case, @#%^ you, I have no pity for you.

Edited, Feb 22nd 2012 3:34pm by BrownDuck
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You guys keep tossing facts out there like they mean something.


#19 Feb 22 2012 at 3:35 PM Rating: Excellent
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#20 Feb 22 2012 at 3:46 PM Rating: Excellent
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Me too.
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#21 Feb 22 2012 at 3:54 PM Rating: Decent
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BrownDuck wrote:
I love how republicans continue to espouse the whole "closing tax evasion loopholes means raising taxes!" bullsh*t. It's only raising taxes if you were unfairly using said loopholes in the first place, in which case, @#%^ you, I have no pity for you.

Methinks you don't understand the word "loophole" in this context (scare quotes seem appropriate here).

The law states that companies do not have to pay taxes on various types of expenses. The law also states that the accounting record of these expenses at publicly traded firms must be reviewed for completeness, accuracy, and material misstatement by independent financial auditors.

Now, some expense classifications definitely favor some industries/firms over others in terms of their tax burden, but taking advantage of these various accounting classifications to reduce your tax burden is not tax evasion (which is illegal). If that were so, the SEC and the IRS would be having a field day collecting settlements from these firms.

Edit: In case you still don't get it, Obama saying that he wants to "close tax loopholes" is an overly-politicized way of saying he wants to eliminate the very legal tax-exempt treatment of certain types of expenses.

Edited, Feb 22nd 2012 3:57pm by Demea
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#22 Feb 22 2012 at 4:20 PM Rating: Excellent
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Demea wrote:
Now, some expense classifications definitely favor some industries/firms over others in terms of their tax burden, but taking advantage of these various accounting classifications to reduce your tax burden is not tax evasion (which is illegal). If that were so, the SEC and the IRS would be having a field day collecting settlements from these firms.

Edit: In case you still don't get it, Obama saying that he "wants to close tax loopholes" is an overly-politicized way of saying he wants to eliminate the very legal tax-exempt treatment of certain types of expenses.


OK, yeah, evasion is a bad word here. However.

Tax preferences also lead to very different effective marginal tax rates across assets. For example, because of accelerated depreciation and other features of the tax code, in 2005 income from a typical investment in structures for oil and gas faced an effective total marginal tax rate (including corporate and investor level taxes) of about 9 percent as compared to a 32 percent rate for manufacturing buildings.


The disparity here is undeniable and unwarranted.

Quote:
For example, the effective corporate marginal tax rate on new equity-financed investment in equipment is 37 percent in the United States. At the same time, the effective marginal tax rate on the same investment made with debt financing is minus 60 percent—a gap of 97 percentage points. This compares to an average difference of about 51 percentage points for other G-7 countries (see Table 3).

This tax preference for debt financing has important macroeconomic consequences. First and foremost, outsized reliance on debt financing can increase the risk of financial distress and thus raise the likelihood of bankruptcy. Unlike equity financing, which can flexibly absorb corporate losses, debt and the associated contractual covenants require ongoing payments of interest and principal and allow creditors to force a firm into bankruptcy. A solvent firm with limited liquidity that is struggling to make its debt payments may experience losses of customers, suppliers, and employees. It may engage in destructive asset “fire sales” and forgo economically profitable investments. And, in an attempt to
avoid bankruptcy, levered firms faced with financial distress may resort to high‐risk negative economic value investments. In the broader context, a large bias towards debt financing in the corporate tax code may lead to greater aggregate leverage and the associated firm‐level and macroeconomic costs of debt financing.


So it's cheaper, tax wise, to fund your business investments with debt than equity, by a tax margin of 97% in some cases. Smiley: facepalm

The proposed tax changes include (cherry picked for making a point):

* Eliminate oil and gas tax preferences.
* Improve transparency and reduce accounting gimmicks.
* Reducing the bias toward debt financing.

Items 1 and 2 are a given.

Item 3 is just plain mind boggling. A corporation might pay less taxes (or in some cases, none at all) simply by taking on debt for new investments, rather than paying for these investments through existing equity. This encourages a culture of borrowing and over leveraging that puts many businesses at risk for total failure, simply to reduce short-term tax exposure.






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#23 Feb 22 2012 at 4:40 PM Rating: Default
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Timelordwho wrote:
Honestly, it will make for great tv as the GOP tells us why reducing taxes is bad for America.


rdmcandie wrote:
I can't wait for Gbaji to come in and tell us why its bad to reduce taxes on Americans, and close loopholes for tax evasion.


Yeah. That's pretty obviously the point of the proposal in the first place. But then, you knew that:


rdmcandie wrote:

I love how Naive you are when it comes to how the mentality of the politic stage works.

A. The GOP say this is a great idea and put support behind the incumbent president, leaving the future GOP candidate treading water.

B. The GOP oppose the idea, thus taking a stance that reducing taxes on americans is a bad thing, or admitting support for loopholes that allow businesses and investors the ability to avoid paying the tax they should be is a good thing.


You left out option C: The GOP praises the idea of lowering taxes, but point out that Obama is not eliminating deductions fairly, but in a way that targets industries he dislikes while favoring those he does. They up the ante by suggesting that we reduce the rate further and flatten deductions across the board instead of selective.

And result is Obama looks like the guy using the tax code to play favorites, which plays right into the "crony capitalism" argument the GOP has been making for a year or so now. All they need to is point to GE to make this point, then ask where the eliminations of the tax loopholes they used to pay zero taxes (which is less than 9% last I checked) are.

Quote:
Pretty cut and dry, option A is out the window as the GOP won't put support behind a democrat president in an election year, as for Gbaji, we all know how much he likes to parrot party talking points.


I have no clue what "the party" is going to say. This is the first I've heard of this. But without looking at the actual proposal itself, I can't assess it directly. Based just on the linked article though, it sure looks like Obama is stacking the proposal with so much stuff that he knows the GOP wont accept that it's clear this isn't a serious tax reform plan, but just a campaign year game. And yeah, you can insert "poison pill" in there if you want. But that's exactly what it is, right?

If I were running things in the GOP, I'd say "great idea Obama!", then have my House members write up a version of Obama's plan which includes all the things the GOP wants. Then make a big deal out of Obama opposing his own plan and use that to highlight the fact that he didn't really want to lower taxes in the first place.

Or, if you want a less cynical approach, you actually put a "real" tax reform bill on the table. One that cuts taxes across the board, and eliminates deductions across the board. Then watch the liberals howl about how completely equal taxes on all businesses are somehow "unfair". That would be fun to watch!


Quote:
All in all, pretty fail proof political barrage by Obama, GOP is damned if they do damned if they don't.



It's a decent barrage, and I'm sure the media will eat it up. I wouldn't call it fail proof though. It's really no different than what he did with his speech about his propsed deficit reduction compromise. That didn't exactly go over well either, did it? At the end of the day, his own party rejected his own proposal. Kinda hard to blame Republicans when the Dems can't even support their own ideas.

Edited, Feb 22nd 2012 2:51pm by gbaji
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#24 Feb 22 2012 at 4:50 PM Rating: Decent
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BrownDuck wrote:
Item 3 is just plain mind boggling. A corporation might pay less taxes (or in some cases, none at all) simply by taking on debt for new investments, rather than paying for these investments through existing equity. This encourages a culture of borrowing and over leveraging that puts many businesses at risk for total failure, simply to reduce short-term tax exposure.


It also encourages more investment and economic growth. Obviously, there's a risk. But the reality is that most business expansion or creation starts with the borrowing of money. Not a lot of people have the cash on hand to start up their own businesses. The same deduction helps them a **** of a lot by reducing the burden of that debt. While it could be abused by large corporations to hide profits for tax purposes, getting rid of it would have a "baby with the bathwater" effect on everyone else who uses it. It's not like that potential small business owner has a choice to borrow or not borrow money to start that business in most cases. They're still going to borrow that money. But now, they'll have to not only pay the interest on the money they borrowed but *also* pay taxes on the money they use to pay that interest.

At the end of the day, fair or not, good tax policy or not, the net effect of eliminating that deduction will be slower growth of new businesses, and consequently new jobs. How much slower? No clue. But everything else staying the same, it will slow that growth. There has to be some number of businesses or individuals for whom that deduction is the difference between choosing to borrow money to create/expand a business or not.
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#25 Feb 22 2012 at 5:37 PM Rating: Excellent
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gbaji wrote:
Based just on the linked article though, it sure looks like Obama is stacking the proposal with so much stuff that he knows the GOP wont accept that it's clear this isn't a serious tax reform plan, but just a campaign year game. And yeah, you can insert "poison pill" in there if you want. But that's exactly what it is, right?


My gut is that he's inserted just enough things to make it sound reasonable at first glance to moderate voters but unpalatable to those further right, in hope of highlighting the differences between them in an election year. But yeah, I suspect any budgeting to play second fiddle to scoring political points from here to the election.

Of course my cynical side would say that's always the case anyway... Smiley: rolleyes
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#26 Feb 22 2012 at 6:14 PM Rating: Decent
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BrownDuck wrote:
So it's cheaper, tax wise, to fund your business investments with debt than equity, by a tax margin of 97% in some cases. Smiley: facepalm

And it's all the fault of those CEOs and lying corporate fat cats who found the most efficient and cost-effective way to finance new spending! Certainly the government that passed the laws governing those tax treatments are completely blameless for this outcome!

Smiley: rolleyes

Edit: Also, I don't think gbaji fully pointed out the flaws in this part.

Quote:
Item 3 is just plain mind boggling. A corporation might pay less taxes (or in some cases, none at all) simply by taking on debt for new investments, rather than paying for these investments through existing equity. This encourages a culture of borrowing and over leveraging that puts many businesses at risk for total failure, simply to reduce short-term tax exposure.
By "existing equity", I'm assuming that you're talking about retained earnings, because otherwise the above paragraph would be silly. However, even if that's the case, a growing business couldn't possibly fund required asset investment on retained earnings alone, not to mention the fact that their stock holders would suffer collective apoplexy.

Which says nothing regarding the tax treatment of said investment funding, just that there's a reason debt financing is essential to economic growth, and more widely used than "existing equity" financing.

Edited, Feb 22nd 2012 6:24pm by Demea
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