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The Inconsistencies of the Obama Corporate Tax Plan

issue brief

The Inconsistencies of the Obama Corporate Tax Plan

By Josh Barro February 23, 2012
EconomicsBudget

President Obama’s corporate tax reform plan starts with a few, broad principles—the corporate tax should have a lower rate and a broader base, and should cause fewer distortions between different kinds of economic activities. These are good principles; for the most part, the plan sticks to them.

In some components, though, the plan goes astray, creating or expanding tax preferences and introducing new distortions. Particularly, it prefers manufacturing over other sectors, renewable energy over other energy sources, and certain multinational structures over others. These are all deviations from the goal of tax neutrality, and they are all negative features of the plan.

The plan has good ideas at its core and its problems can and should be fixed. Some of the ill-advised proposals, like expanded manufacturing deductions and tax credits for in-sourcing jobs, would cost revenue. Others, like new efforts to tax the foreign operations of U.S. firms, would raise it. As such, it may even be possible to eliminate the undesirable features of this corporate tax reform plan without significantly affecting the amount of revenue to be collected.

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