Article Summary





Article Summary

            The current corporate tax in the United States is standing at 35% according to Calmes in her article reporting on Obama’s plans to lower it to 28%. In addition, for a manufacturer who sets their maximum effective rate to 25%, they shall have preferences. In addition, Obama will enforce a minimum rate for the international companies with foreign earnings meant to discourage unethical accounting measures for shifting their profits to other countries. The aim of the plan to cut the corporate tax seeks to provide a fairer tax system that guarantees a leveled playfield for all the businesses. The system will still give the government the opportunity to continue collecting revenue with a guarantee for economic growth (Calmes 2012).

The 35% corporate tax has been recognized as among the highest in other developed countries. This has put the American companies at a less competitive position due to high taxes that they pay above other foreign companies despite utilizing all tax breaks available. From such reasons, it has been realized that many companies seek to reduce costs through taking their jobs abroad where costs are lower. However, president Obama suggested removing tax breaks for companies that take jobs abroad and increase tax breaks for companies that bring jobs to America (Calmes 2012).

Another strategy by president Obama is to reduce the tax breaks, and the revenue earned form the eliminated tax breaks would be used to create other tax breaks for companies engaged in innovations green production and clean energy companies. However, this might face opposition since some companies might still want to have tax breaks on some expenses. In a report by a congress committee, it was said that even after removing all corporate tax breaks, the corporate tax reduction would not go below 28% without increasing deficits. It has been found that there will be a difficulty reducing tax breaks that would amount to a reduction of up to 28% in the corporate tax without incurring deficits (Goldfarb 2012).

Since he entered office, the article cites that president Obama has been seeking to help the manufacturing industry, especially in the auto industry. This has become a focus for him, considering it is an election year, and focusing on the manufacturing industry especially in the Midwest would gather him support. However, concerning the tax, a challenge of selecting manufacturers who shall receive the reduced tax rates will be posed to the Obama administration. Obama’s tax reform would be focusing on reduction of effective rate for the manufacturing to maximum of 25%. The reform also focuses on promoting more research and development of better energy (Goldfarb 2012).

For Multinational Corporation, having a minimum tax rate will mean exempting their foreign income earnings from the American tax system. This will mean a “shift to territorial system of taxing offshore profits, which could exempt most of corporations’ foreign earnings,” (Calmes 2012). This move will face a lot of opposition from many officials since this will reduce revenues for the country many of the officials do not favor such change. However, there is an argument that taxing multinational corporations foreign earnings will encourage dirty accounting schemes meant to keep foreign earnings from taxation. The argument further suggests that taxing of the foreign earnings encourages the multinational companies to keep their earnings from the American market in order to avoid the tax. The point behind having a minimum tax rate for these companies is to avoid such incidents of using accounting schemes to avoid taxes so that such earnings can be invested in America ( 2012).


Work cited

Calmes, Jackie. “Obama Offers to Cut Corporate Tax Rate to 28%.” New York Times 22 Feb. 2012: Print. Obama Offers to Cut Corporate Tax Rate to 28%., 22 Feb. 2012. Web. 29 Feb. 2012.

Goldfarb, A. Zachary. “Obama proposes lowering corporate tax rate to 28 percent.” The Washington Post 22 Feb. 2012. Print.

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