President Barack Obama, prodding Congress to consider fresh economic proposals after two years of gridlock, called for restructuring business taxes so long as the initial revenue generated goes toward job creation.
?Washington has taken its eye off the ball?: Obama attempts to put focus back on economy
President Barack Obama, facing renewed battles with congressional Republicans over fiscal policy and the debt ceiling, accused his political opponents of diverting attention from the task of boosting the U.S. economy.
?With an endless parade of distractions, political posturing and phony scandals, Washington has taken its eye off the ball,? Obama said Wednesday in an address at Knox College in Galesburg, Illinois. ?I am here to say this needs to stop.?
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In a speech today in Chattanooga, Tennessee, Obama said that years of budget fights have diverted attention from the need to help middle-income Americans recover from the recession.
?I?m willing to work with Republicans on reforming our corporate tax code, as long as we use the money from transitioning to a simpler tax system for a significant investment in creating middle-class jobs,? he said in prepared remarks. ?That?s the deal.?
As an alternative to seeking quick passage of the deficit-reduction formula that has eluded lawmakers for two years ? a mix of increased tax revenue and entitlement curbs ? Obama proposed spending more to help manufacturing, worker training and infrastructure improvements that create jobs.
?If Washington will just end the gridlock and set aside the kind of slash-and-burn partisanship we?ve seen these past few years -? our economy will be stronger a year from now,? he said.
Under the proposal, Obama would seek a business tax change that produces a one-time revenue gain, and that would be earmarked for the repair of roads and bridges or other public works, innovation centers for manufacturing and community college training to close skill gaps.
Short-term gains in tax collections can?t be used to lower tax rates, said Gene Sperling, director of Obama?s National Economic Council, in a phone call with reporters today. Long-term changes in corporate taxes should be revenue neutral.
Republican Reaction
Republicans quickly dismissed the White House plan.
?It represents an unmistakable signal that the president has backed away from his campaign-era promise to corporate America that tax reform would be revenue-neutral to them,? said Senator Mitch McConnell of Kentucky, the Republican leader.
The jobs-related programs would be funded by a one-time transition fee associated with the US$2 trillion in foreign earnings that are currently held overseas, said an administration official who asked not to be identified to discuss details before the speech.
The officials declined to specify how much money would be generated and didn?t detail how it would be structured. The proposal marks a shift for Obama, who has previously called for rewriting individual and business income tax law together.
Eliminating Breaks
Obama, in February 2012, proposed reducing the top corporate rate for most companies to 28% from 35%. The plan would eliminate tax breaks and change core tax-code features such as interest deductibility. He?s also proposed lowering the rate for manufacturers to 25% and expanding and making permanent the research-and-development tax credit.
Today?s speech, at an Amazon.com Inc. distribution center, is the latest in Obama?s campaign-style effort to turn attention back to the economy as he heads into fresh budget fights with Congress over government spending and raising the debt ceiling.
If Washington will just end the gridlock and set aside the kind of slash-and-burn partisanship?our economy will be stronger
While officials said Obama isn?t abandoning efforts for long-term deficit reduction, they said the new proposal is an acknowledgment that talks toward a long-term fiscal solution are at an impasse.
In other White House changes, Obama is proposing a permanent increase in expensing for small business to US$1 million a year, Sperling said.
The president also plans to issue executive orders, one of which would increase to 45, from 15, the number of centers for manufacturing innovation created over the next decade.
Jobs Conference
Obama is calling for a two-day conference Oct. 31 and Nov. 1 to encourage foreign companies to locate jobs in U.S. He also plans a conference with chief executive officers later this year to seek more hiring of the long-term unemployed.
Sperling said the administration consulted with Democratic and Republican leaders before offering the new plan for a rewrite of corporate taxes. He didn?t say who they were.
He said some prominent Republican lawmakers ?have suggested why don?t we do corporate tax reform alone,? and set aside changes in individual taxes.
Obama ?is willing to consider breaking that off, as some have suggested,? Sperling said.
Overseas Earnings
The idea of taxing approximately US$2 trillion in accumulated overseas earnings as a transition to a new system resembles a proposal from Representative Dave Camp, chairman of the House Ways and Means Committee. Spending the proceeds on jobs programs, though, may run counter to the Michigan Republican?s goal of a revenue-neutral approach.
Camp?s 2011 draft would require companies to pay 5.25% on all offshore funds, regardless of whether they are brought home. He plans to include that in legislation he wants to move through his committee this year.
Under the current tax system, U.S.-based companies must pay the U.S. rate of 35% on all the income they earn around the world. They get tax credits for payments to foreign governments and don?t owe the U.S. unless they bring the profits home. Companies such as Caterpillar Inc. and United Technologies Corp. have called for the U.S. to switch to a so-called territorial system that wouldn?t tax most future offshore earnings.
Territorial System
Camp?s plan would use the one-time tax to finance the territorial system, which costs the government some revenue each year. He hasn?t released a detailed revenue estimate; the loss of the one-time money, which is payable over eight years, has the risk of creating a budget hole. Obama has opposed a pure territorial system.
Both Camp and Obama have resisted a one-time holiday for repatriation, which companies such as Cisco Systems Inc. and Google Inc. have preferred and lobbied for in 2011.
Obama will make a rare trip tomorrow to Capitol Hill where he?ll meet separately with Senate and House Democrats.
Former Commerce Secretary Carlos Gutierrez, who served under President George W. Bush, said today that Obama?s latest proposal is nothing more than a tax increase.
?They?re trying to raise revenues, which is the last thing I think the government needs,? Gutierrez said on Bloomberg Television?s ?Surveillance? program.
?There?s confusion in this administration regarding who creates jobs,? the former chairman of Kellogg Co. said. ?They think, they really do think, that the government?s role is to create jobs.?
?Fundamental Misunderstanding?
?There?s a fundamental misunderstanding on how the economy works,? Gutierrez said.
Even as Obama argues that a rapidly decreasing deficit has pushed the issue of jobs to the forefront, the congressional calendar may dictate otherwise. When lawmakers return in September from their August recess, they and the president will confront decisions affecting the economy, including determining federal spending levels and raising the government?s US$16.7 trillion debt limit.
Republican lawmakers are demanding spending cuts in exchange for raising the debt limit. Obama has pushed for spending increases for infrastructure improvements, expanded educational opportunities and more support for research ? a recurring drama in fiscal negotiations since 2011.
Break Cycle
Officials said Obama was looking to break that cycle to help Americans still reeling from the economic meltdown. Even as the economy continues to expand and add jobs four years into the nation?s recovery from its worst recession since the Great Depression, Americans at the middle of economic ladder haven?t regained lost prosperity.
The economy grew at a 1.8% rate during the first three months of the year, more slowly than its 2.5% average pace during the last two decades. The unemployment rate, at 7.6% in June, remains above its 6% average over the past 20 years.
While the benchmark Standard & Poor?s 500 stock index is up more than 18% this year and has almost doubled since Obama took office in 2009, the median household income of US$51,500 in May is 5% lower than in June 2009, the official end of the recession, according to estimates by Sentier Research.
Yesterday, Amazon announced that it was adding more than 5,000 full-time jobs at facilities like the one Obama is visiting. The company plans to open five more warehouses this year after adding 20 last year.
Chief Executive Officer Jeff Bezos has sought to open centers full of products closer to consumers, to reduce shipping costs and speed delivery. Median pay at the company?s packaging centers is 30% higher than traditional retail jobs, according to the retailer.
www.bloomberg.com
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