Today President Obama proposed combining corporate tax reform and a package of jobs initiatives and urged Congress to enact both. The President stated that revenues generated in the early years of tax reform could offset the cost associated with the spending initiatives he laid out.
The President’s corporate tax reform proposal is not new; he had proposed a framework for revenue-neutral corporate tax reform in February 2012. The President did not dismiss individual tax reform, but framed his proposal as important for continued domestic job growth. The jobs initiatives include infrastructure funding, a new version of Build America Bonds and community college-based job training. The package also includes an increase in the minimum wage.
The President’s comments will give at least short-term momentum to the efforts of House Ways & Means Chairman Dave Camp and Senate Finance Chairman Max Baucus. The chairmen are attempting to persuade their colleagues and the nation that now is the time for Congress to reform the tax code.
Some congressional Republicans criticized President Obama for moving off his proposal for “revenue-neutral” tax reform, but the President’s language left open the possibility for just such revenue neutrality. He said that revenues generated as the country transitions to a new tax code could be used to fund middle-class job initiatives. But he did not call for corporate tax reform to raise money over the long term.
A number of policy proposals currently in play could produce revenue in the early years and yet be revenue neutral over the long term. Among these:
- Repatriation Tax. Proposals to move toward a more territorial tax system include a one-time tax on untaxed corporate profits currently held offshore but repatriated under the new system. While there is not a consensus on what that tax rate should be, it will produce significant sums in the early years.
- Less Accelerated Depreciation. Modifications to the current cost recovery tax accounting rules to make depreciation and amortization less accelerated would produce revenue in the short term, but be revenue neutral over time.
- Retirement Security. Several proposals to modernize our retirement savings system produce revenues in the short term while scoring as revenue neutral over time.
There are, of course, other ways that tax reform could generate revenues in the short term but remain revenue neutral over the long term. Applying an early effective date to provisions trimming tax expenditures while delaying rate cuts for one or two years would achieve the President’s objective.
Corporate tax reform will be seriously considered by the 113th Congress. The House Ways and Means and Senate Finance Committees will mark up bills, probably this fall. Speaker Boehner has stated he wants to give the House an opportunity to consider comprehensive tax reform. And now today the President has spoken on the topic.
For more information, see the White House Fact Sheet.