Tax Rhetoric and Reality:<br> President Obama's "State of the Union"
On Tuesday evening, President Obama delivered his annual “State of the Union” address. Below are the excerpts dealing with taxes, and commentary on those excerpts from Americans for Tax Reform:
“We did that [worked together] in December. Thanks to the tax cuts we passed, Americans’ paychecks are a little bigger today. Every business can write off the full cost of the new investments they make this year. These steps, taken by Democrats and Republicans, will grow the economy and add to the more than one million private sector jobs created last year.”
Yes, Mr. President, new tax cuts (and avoiding tax hikes) are good for the economy. The payroll tax rate reduction increased take home pay. ATR called the “full business expensing” part of the bill the “killer app” of the entire deal, and have since called for it to be expanded and made permanent. Reducing the government’s tax hit on small businesses and families is a good thing that you should build upon in the years ahead. Start by making today’s tax rates permanent.
“We need to get behind this innovation. And to help pay for it, I’m asking Congress to eliminate the billions in taxpayer dollars we currently give to oil companies. I don’t know if you’ve noticed, but they’re doing just fine on their own. So instead of subsidizing yesterday’s energy, let’s invest in tomorrow’s.”
It’s hard to say that letting energy companies keep their own money is “giving them” anything. But if deductions and credits are repealed and the money used entirely to reduce tax rates, that is a good thing. If the money is used to spend on make-work, government green jobs boondoggles, that’s another thing entirely. Higher energy taxes means higher energy bills.
“Over the years, a parade of lobbyists has rigged the tax code to benefit particular companies and industries. Those with accountants or lawyers to work the system can end up paying no taxes at all. But all the rest are hit with one of the highest corporate tax rates in the world. It makes no sense, and it has to change.
“So tonight, I’m asking Democrats and Republicans to simplify the system. Get rid of the loopholes. Level the playing field. And use the savings to lower the corporate tax rate for the first time in 25 years – without adding to our deficit.”
It’s disappointing that President Obama didn’t suggest a target rate here. The average corporate income tax rate of our European competitors is about 25 percent. Our corporate rate (federal and state) is about 40 percent. Corporate tax reform should have as its goal getting the rate to at or under this European average. It should also move our system from its current “worldwide” tax regime (where all income of all U.S. companies is taxed all around the world by the IRS) to a “territorial” system (where only the income earned in the U.S. is taxed)—the same system the rest of the world uses. This would make many of the international deferrals, deductions, and credits unnecessary. Full business expensing should be permanent.
“Now, I’ve heard rumors that a few of you have some concerns about the new health care law. So let me be the first to say that anything can be improved. If you have ideas about how to improve this law by making care better or more affordable, I am eager to work with you. We can start right now by correcting a flaw in the legislation that has placed an unnecessary bookkeeping burden on small businesses.”
President Obama is referring to one of the nearly two-dozen new or higher taxes in the Obamacare law. This particular tax hike refers to the increased “1099-MISC” information reporting requirements. This law will require every small business to collect tax information and paper-file dozens of new tax forms to every airline, restaurant, gas station, office supply store, etc. with whom they do at least $600 in business. This tax hike, like the rest of Obamacare, should be repealed. These tax hikes are especially unfair to families making less than $250,000.
“And if we truly care about our deficit, we simply cannot afford a permanent extension of the tax cuts for the wealthiest 2% of Americans. Before we take money away from our schools, or scholarships away from our students, we should ask millionaires to give up their tax break.
“It’s not a matter of punishing their success. It’s about promoting America’s success.
“In fact, the best thing we could do on taxes for all Americans is to simplify the individual tax code. This will be a tough job, but members of both parties have expressed interest in doing this, and I am prepared to join them.”
We are confused. Does President Obama want to do individual tax reform—where the base is broadened, rates are lowered, and tax revenues are no higher than they are today—or does he want to see taxes go up?
There’s no way to “reduce the deficit” using tax changes without there being a massive new tax hike. That’s what “reducing the deficit” here means—raising taxes, and instead of using that money to lower tax rates, using that money to supplement government spending elsewhere.
You can be for higher taxes, or you can be for tax reform, but you can’t be for both.