A Spurned Offer on Corporate Taxes

Jared Bernstein is a senior fellow at the Center on Budget and Policy Priorities in Washington and a former chief economist to Vice President Joseph R. Biden Jr.

Given today’s political climate, one should not be surprised by senseless opposition to good ideas, but I must say I was a bit stunned by the Republican response to President Obama’s proposal to trade a corporate tax cut for a small jobs package.

I choose the word “good” above carefully to mean an idea that is designed to appeal to Republicans who have long been clamoring for a corporate rate cut.  At this point, if the president came out in favor of breathing, they’d tell their caucus members to hold their breaths.

A bit of background: President Obama is announcing a plan Tuesday to lower the corporate tax rate to 28 percent from 35 percent. The proposal is “revenue-neutral,” meaning that even though the rate comes down, the amount of revenue collected will not change, because of a broader tax base.  This is a common feature in tax reform proposals: you pay for a lower rate by closing loopholes and special breaks for various industries, breaks with which the corporate tax code is, of course, ripe.

Now, here’s an interesting, albeit weedy, wrinkle.  Some of the revenues you get from the base broadening are one-hit wonders: the Treasury gets a lift from a transition from one tax structure to another, but it’s not the kind of revenue stream you can count on in later years.  The smart thing to do in that situation is thus not to count on those revenues for the future but to do something useful with them now.

For example, you can pay the bill on a temporary jobs package that includes infrastructure projects, school modernization, support for new innovation in manufacturing and worker training through community colleges. These ideas look to me to have also been chosen, if not to appease the Republicans, then not to provoke knee-jerk opposition, as would have been the case if the White House said, for example, “New jobs for teachers!”

So, reviewing: we’ve got a big drop in the corporate rate that doesn’t add to the deficit, for which the Republicans have only to swallow a paid-for jobs program in areas they’ve historically supported.  And what’s the response?

From the spokesman for the House speaker, Representative John Boehner: “This proposal allows President Obama to support President Obama’s position on taxes and President Obama’s position on spending, while leaving small businesses and American families behind.”

I know, we’re in an upside-down world, but given how hard Republicans have fought for a lower corporate rate, the absence of accountability is particularly striking in this example.  At this point, I truly wonder that if he finally gave in and offered to repeal Obamacare, they’d fight to implement it tomorrow.

The other line of Republican attack is that the idea will hurt small businesses. Not only is there no evidence of that, but part of the plan is actually to allow small business an immediate write-off of 100 percent of the costs of new equipment, up to $1 million. That gives small businesses an incentive to invest, and lowers, not raises, the taxes of those who do so.

Let me be clear: I’m not 100 percent happy with this deal.  I firmly believe that corporate tax reform should be revenue-positive, not neutral.  The corporate sector is contributing historically little to our revenue base, and I see little reason to lock that in. But from the Republicans’ perspective, that’s a feature, not a bug.

Finally, some in the opposition are criticizing the deal because they want a full package that combines reform of both the corporate and individual sides of the code.  Well, I’d like to dunk like LeBron James, but it’s not going to happen, especially with Republicans as dug in as they are on no-new-revenues (not sure what that has to do with my basketball skills, but you get it).

This is a good deal for them, and given how wrenchingly tough the politics are right now, and how much the jobless need the help, it is a compromise that even revenue-positive folks like myself should accept. That it appears to be facing the same blockade as everything else gives you a sense of Washington’s dysfunction.