That was then, this is now: corporate tax rate cut edition

by on October 10, 2017 at 8:52 am in Current Affairs, Economics, History, Law | Permalink

Obama proposes lowering corporate tax rate to 28 percent

That is circa early 2012, and presumably Obama’s CEA signed off on the idea.  Romney at the same time proposed a rate of 25 percent.

I believe that, in a rush to criticize a proposed Trump tax cut, we are in danger of forgetting the wisdom of 2012.

1 rayward October 10, 2017 at 8:58 am

Of course, this isn’t 2012. Or is Cowen capable of time travel?

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2 aMichael October 10, 2017 at 10:30 am

???

Do you have some reason why a lower corporate tax rate would be worse for the economy in 2017 than in 2012?

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3 Dick the Butcher October 10, 2017 at 12:07 pm

The metaphor that comes to mind is the little, Dutch boy with his finger in the dike.

We know the Obama administration never achieved higher than 2% GDP growth.

I know. I know. Many other Obama regime missteps contributed to eight yeas of piss-poor economic growth.

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4 mulp October 10, 2017 at 1:30 pm

What Tyler is ignoring is Obama’s 28% was a tax revenue hike and thus flatly rejected.

I proposing cutting the business tax rate to 15% and broadening the tax base by eliminating the tax deductibility of labor costs, the costs of imported goods, and exempting income from sales outside the US from tax liability.

This will then be much lower than China’s 17% and Germany especially 19%. Corporate, business tax revenue will increase so taxes on wage income and dividend income can be cut to 15-25% with large personal exemptions.

Of course, I’m proposing the 15% tax Trump wants based on China and Germany and Europe having the superior 15% plus VAT.

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5 mulp October 10, 2017 at 1:33 pm

Canada is at 15% and Mexico at 16%…

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6 TheTechnate October 10, 2017 at 8:59 am

Has Tyler forgotten how to do math? 28% is not the 20% that Trump is proposing.

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7 Tyler Cowen October 10, 2017 at 9:26 am

Nothing in my post calls for a reduction to 20 percent.

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8 Andre October 10, 2017 at 11:05 am

But trump is calling for 20, then 15, then 20, massive revenue losses and huge benefits for his companies personally. Opposition to that proposal has nothing to do with Obama or Romney.

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9 Erik October 10, 2017 at 11:44 am

In honor of Peter Thaler and nudging, may I suggest that the call for a corporate income tax of 20 or 15 percent is a first ask.

I’d also personally disagree with the idea that a substantial reduction or outright elimination of the corporate income tax would provide “huge benefits for … companies”. I think it tends to be accepted that corporate income tax is taken out of wages and wage growth, and not from shareholder profits.

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10 Andre October 10, 2017 at 12:39 pm

Lol did you just … Trump designing a corporate tax regime that has huge benefits for his companies personally? That just a little detail to skip over?

11 byomtov October 10, 2017 at 12:58 pm

No. It does not “tend to be accepted that corporate income tax is taken out of wages and wage growth, and not from shareholder profits.”

There is very little doubt among serious economists that the immediate impact of corporate tax cuts would be to help corporations and that the vast majority of corporate shareholding is concentrated among those at the top of the income and wealth distribution.

There seems to be no consensus. And the reality appears to be that the incidence varies widely depending on lots of factors.

12 Anon October 10, 2017 at 1:00 pm

“Designing a corporate tax regime” = accepting Obama’s proposal?

13 CorvusB October 10, 2017 at 2:03 pm

You are assuming, then, that the excess profits from a corporate tax cut would go into wages and wage growth, which rather defies historical records.

14 Erik October 10, 2017 at 2:45 pm

@ Andre

It is entirely possible that Trump has proposed a good policy. Just because Trump proposed it doesn’t mean it’s self serving or bad. You need a little more than Trumpenhass to discredit something. Also, consider Anon’s point, and the point of this post, that in 2012 this was, more or less, Obama’s proposal.

@byomtov

I think the case is much stronger for the case that the incidence falls on wages and wage growth. Regardless, wouldn’t it be better to more effortfully allocate the tax burden to the higher-income earners than to hope that the incidence falls on shareholders in such a non-transparent way? Again, I think the case for shareholders (@CorvusB *in the long run* – the point I think you’re trying to make has to do with the Reagan tax holiday) bearing the majority of the costs isn’t as intuitive or salient as the case that the costs are taken out of labor. To be frank, most of what I’ve read that seems to come from a credible source (which is more than a little circular, I know) reinforces the idea that labor, or worse yet the least mobile and unskilled kind of labor, tends to pay more than their fair share of the CIT.

15 Andre October 10, 2017 at 5:27 pm

Trump proposing a cut in the corporate tax rate doesn’t mean every other previous attempt to cut the corporate tax rate is the same, that is just preposterous. Obama’s plan increases revenue, Trump drops it. Obama goes after money held overseas, Trump does nothing. Obama targets Oil and Gas company breaks, Trump does nothing. Obama has no mention of a special rate for pass through corporations that would benefit him personally, and we know what would benefit him because he released his taxes.

Rejecting Trumps proposal doesn’t mean any previous attempts to reach a rate less than 35% are good, bad, or comparable.

16 dearieme October 10, 2017 at 11:47 am

“Nothing in my post calls for a reduction to 20 percent.” Why not? UK 19%. Republic of Ireland 12.5%.

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17 prior_test3 October 10, 2017 at 11:50 am

From the second paragraph of the 2012 kink – ‘The plan would lower the nation’s corporate tax rate to 28 percent. At the same time, Obama wants to boost overall revenue from corporate taxation by banning numerous deductions and loopholes that save companies tens of billions of dollars a year on their tax bills.’

So, what are the highlights of the Trump Administration plan to boost revenue by closing deductions and loopholes?

And since when did boosting overall government revenue beomce ‘wisdom’ at this web site?

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18 prior_test3 October 10, 2017 at 11:54 am

Well, that was an interesting spelling error – ‘link,’ not ‘kink.’

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19 Nick October 10, 2017 at 11:45 pm

Are you trying to argue that if you ever agree to a cut in a specific tax, you’re implicitly agreeing to a cut of ANY magnitude?
For example, if you supporting lowering the top income tax from 39.6% to 38.6%, you MUST be in support of lowering it to 1%?

No, of course not, that’s insane. But that’s the logic you’re using in your post, which is obviously wrong, and I (and probably several other commenters) are wondering why you’d use such an obviously flawed argument.

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20 So Much For Subtlety October 10, 2017 at 9:01 am

Since 9-11 at least there has been no position that the Left has not been willing to throw away in its effort to smear the Right. You see this best with Trump where he just has to support something – anything – and the Left suddenly ditches its previous position to embrace it. This week’s example if the NFL and free speech which just the week before the Left despised.

But it is also bigger things like democracy for the Third World. When George W and the neo-cons embraced that the Left rushed to the neo-colonial position that some people are not quite ready for democracy. It is a weird world.

If Trump endorsed Transsexuals, the Left would be in bed with Rick Santorum tomorrow.

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21 A Truth Seeker October 10, 2017 at 9:24 am

Probably there is some difference between not wanting to overthrow democratically elected governments for the good of United Fruit (even then, Democrats engaged in plenty of it, too) and wanting to conquer the World “for democracy” (or Iraq building nuclear weapons and being respnsible for 9/11, I can’t keep track of all American lies). Anyway, if you want democracy, you can start with your allies – Saudi Arabia, for example. The American regime is the focus of evil in the modern world and is the main responsible for international unrest.

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22 Stephen W October 10, 2017 at 9:33 am

@A Truth Seeker

What an interesting opinion! Please tell me more!

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23 A Truth Seeker October 10, 2017 at 9:53 am

Do you know the teachings of Prophet Bandarra?

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24 msgkings October 10, 2017 at 12:27 pm

Doesn’t everyone?

25 A Truth Seeker October 10, 2017 at 1:27 pm
26 msgkings October 10, 2017 at 1:35 pm

Well those people must be made to believe! And the uninformed must hear the word! How can we do this, brother?

27 A Truth Seeker October 10, 2017 at 1:45 pm

I think more blog post will happen in the long run. I always talk to my work colleagues, espexially the youngest ones, less settled in their ways, about the Prophet and his works.

28 chuck martel October 10, 2017 at 9:37 am

The idea that US-style faux democracy is an evolutionary step upward in nation-state governance isn’t universally accepted as the truth by many even ordinary people around the world. Maybe you could make the case that they’re simply too ignorant to adopt what Americans find obvious. That’s why it may, at times, be necessary to advance the democratic agenda at gunpoint.

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29 A Truth Seeker October 10, 2017 at 9:52 am

Sometimes. And sometimes all it takes is stop killing Latin Americans.

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30 msgkings October 10, 2017 at 12:26 pm

SMFS forgets the right doing exactly this when Obama was around. The jokes were the same: ‘hey Obama should come out for repealing the estate tax so the Reps would oppose him’. Partisans just can’t see how similar the other side is.

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31 Harun October 10, 2017 at 3:09 pm

Obama himself did this. He was a deficit hawk in 2006. (in speeches at least.)

Its pretty common.

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32 msgkings October 10, 2017 at 3:25 pm

Agreed, it’s politics 101

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33 So Much For Subtlety October 10, 2017 at 6:47 pm

I don’t think it would be possible to forget it because it was not true. For all the headlines, the Republicans supported Obama on a great many things – his foreign policy mostly. His pathetic little bombing war in Syria did get funded. And the Republicans did not have to sell out any principles – well not any new ones. They have been committed to selling out their own voters on things like abortion since the 70s. They did not suddenly discover the joys of regulation – although they let Obama pass all the regulations he wanted. They did not suddenly discover that the family was an oppressive unit that had to be destroyed. Obama embracing one-man-one-wife marriage did not cause them to defend the Gay marriage lobby.

You are simply defending your side of politics reflexively rather than by looking at the evidence

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34 msgkings October 11, 2017 at 12:13 am

I don’t have a ‘side’ I’m pretty centrist. But on this site the dumb partisans are mostly Reps, hypocritically accusing the Dems of doing stuff they do all the time. So I point out the hypocrisies. On lefty sites I do the same to the knee jerk Dem partisans who are convinced Hillary Clinton was the greatest candidate in American history and Trump is the Devil.

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35 mulp October 10, 2017 at 1:46 pm

Whey do you think liberals take positions based purely based on being opposite conservatives?

And where has Trump held the same position on any topic since Obama started his run for the presidency?

Since 2008, Trump has based every single one of his positions on opposing everything Obama did or proposed.

Unless you are arguing Obama has a time machine he used to travel to 2018 to learn of every Trump policy in order to take policy positions opposite 2018 Trump in 2008, but often the same as 2006 Trump.

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36 Mark October 10, 2017 at 9:09 am

Total BS by you, Tyler. Second paragraph of the article:

“At the same time, Obama wants to boost overall revenue from corporate taxation by banning numerous deductions and loopholes that save companies tens of billions of dollars a year on their tax bills.”

Trump, McConnell and Ryan do not want to “boost overall revenue from corporate taxation.”

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37 dan1111 October 10, 2017 at 10:32 am

Harsh, but I think this is 100% correct.

The article goes on to note that Obama’s tax plan targeted oil and gas companies and taxed American-based companies for overseas profits.

It was a thoroughly left-leaning proposal, and the rate reduction merely reduced the size of the tax increase.

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38 aMichael October 10, 2017 at 10:33 am

Are you saying you’d be cool with lowering the overall corporate tax rate if these other conditions were met?

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39 dan1111 October 10, 2017 at 12:25 pm

Trump is proposing to lower taxes, while Obama was proposing to raise taxes. Focusing solely on the rate is a red herring.

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40 Dean October 10, 2017 at 12:42 pm

Yes. If it were actually revenue neutral, then it would be fine. The problem is that with an effective tax rate at around 24% (depending on your math), it’s not possible to get to 20% through base broadening alone.

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41 prior_test3 October 10, 2017 at 11:52 am

So, someone already caught that.

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42 Ben October 10, 2017 at 9:19 am

Ah yes, the wisdom of 28 > 20. Timeless, really.

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43 Borjigid October 10, 2017 at 9:30 am

Well, it is undeniably true that 35 (the current rate) > 28 > 20, so it seems there is room for agreement. Those are headline rates of course, as Mark points out above.

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44 Gboyega October 10, 2017 at 9:48 am

Lol. Tyler Cowen created a complaint made by no one to argue a point he’s been dying to make. If you cut corporate tax to 28% I’m sure no one will complain. If you cut loopholes used by most big companies to pay an effective tax rate far lower than 28% the big companies will cry. This is total different from a proposed 20%, especially since pass-through entities will be the biggest beneficiary.

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45 anon October 10, 2017 at 10:51 am

Yeah. I don’t need funny comparisons between headline rates. Show me the full plan modeling and revenue impacts (using a 5 year moving average for growth!).

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46 Ray Lopez October 10, 2017 at 9:58 am

Lowering taxes when budget deficits are perpetual is bad (nobody really believes in Ricardo’s deficits are just future taxation). Even the now deceased right-wing aide to Reagan, N*, the architect of “Starve the Beast” admitted this just before he died, for the same reason as does leftist Kevin Drum and agreed by centralist B. Bartlett:

Kevin Drum: “[W]hat makes it even more crackpotty is that basic economic principles, of the kind that Republicans are endlessly lecturing the rest of us about, predict the same thing. If you raise taxes to pay for government programs, you’re essentially making them expensive. Conversely, if you cut taxes, you’re making government spending cheaper. So what does Econ 101 say happens when you reduce the price of something? Answer: demand for it goes up.” cited in: http://www.outsidethebeltway.com/the-failure-of-starve-the-beast/

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47 chuck martel October 10, 2017 at 10:22 am

Taxes aren’t used to pay for programs, they’re used for social engineering. Single employed males pay high income taxes even though they use the least government programs. This can happen because the typical single male is more concerned with fantasy football than fantasy money. They’re being “nudged” to marry and have kids while at the same time other sections of government are discouraging wedlock through easy divorce and confiscatory alimony and child support payments.

Taxes aren’t needed to pay for government programs because the money is simply enpixelated on computer servers. Treasury bills and bonds are purchased with enpixelated money and are repaid with the same invisible, ephemeral money plus enpixelated interest. This works well until it doesn’t.

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48 JNs October 10, 2017 at 10:32 am

| “Lowering taxes when budget deficits are perpetual is bad….”

so therefore ‘Raising taxes when budget deficits are perpetual is Good’ ???

Obviously the problem is not tax levels — it is totally irresponsible government spending (perpetual deficits)

What’s the RayLopez solution to irresponsible government spending?

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49 mulp October 10, 2017 at 1:53 pm

Wold you prefer the economic growth from 1930 to 1970 for former farm labor and rural workers or the economic growth from 1980 to the present for 1970 factory workers in mostly rural States, aka the Rust Belt?

Was the economic policy of the 30s-70s set by conservatives like FDR and Keynes and since 1980 by leftists like Reagan and Milton Friedman?

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50 2222Zulu October 10, 2017 at 6:24 pm

The “preferred” economic growth is that produced by the private economy… with minimal taxes & government interventions and the absence of ruinous wars sparked by politicians. The U.S. government historical record from 1930-2017 is horrible on those counts, but from your narrow perspective this is, of course, the best-of-all-possible-worlds and outcomes.

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51 Ray Lopez October 10, 2017 at 2:14 pm

@JNs – yes, and what mulp said. In fact government as percent of GDP was lower in the 1970s than in the 1980s (as was wage growth, productivity however did come back due to the rise of the machines). And the point I made above: if tax-and-spend rather than borrow-and-spend, people will use less government, not more, as K. Drum points out, since they get “fed up” with Big Government (the original reason they voted for Reagan btw).

To come back to Thaler and behavioral finance: people don’t act according to the Ricardo Equivalence theorem (Google this if you’re not clear what this means): people really don’t think their kids will pay for it, and they get confused and over-indulge in Big Government, including Corporate Welfare, Making The World Safe For Democracy (TM), Regime Change, Everybody Should Own A House (TM) via Fannie/Freddie, and other such fantasies because, as N* realized (I cannot even get his name to show up in Google, despite there being an entire Washington DC think tank partly funded by Cato in his name! Search market failure), “Starve the Beast” simply causes even Bigger Government.

Let’s not overthink this: it’s Econ 101.

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52 msgkings October 10, 2017 at 2:28 pm

N* is Grover Norquist, isn’t it?

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53 poorlando October 10, 2017 at 12:15 pm

Taxes are mostly paid by the rich, so by this logic, government spending is free for poor people who will then have infinite demand for it. To get less spending by the government, we should then increase taxes on the poor.

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54 c October 10, 2017 at 10:56 am

This reminds me of nothing so much as the “Cato (or maybe it was Heritage) originated the idea of a healthcare mandate!” when ObamaCare was getting passed. It’s true in both cases but is so removed from other details and context that it verges on being untrue.

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55 chuck martel October 10, 2017 at 11:12 am

Corporate taxes are the ownership aspect of private business by government, ie. fascism. It’s made even more onerous by taxing the individual income of corporate stockholders. Since management decisions must follow government mandates and guidelines, the government being the supra-management of the business, a truly fascist system is in place. This system is in the interest of government and business because it creates a stable relationship between government and existing business and discourages competition from upstart companies.

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56 Ricardo October 10, 2017 at 11:34 am

If you don’t want your business to pay corporate taxes, organize it as a sole proprietorship, partnership, S Corp or LLC. To get to the point where you owe corporate taxes, you have to make an affirmative decision to structure your business in a certain way and file paperwork with the state electing to be treated as a taxable corporation. Some Wall Street firms were organized as partnerships not that long ago, for instance. Most people in a position to make this decision have presumably weighed the costs and benefits of that decision.

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57 A Truth Seeker October 10, 2017 at 11:17 am

America has become a divided country where everything from “football” to tax rates to sexual abuse is politicized.

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58 poorlando October 10, 2017 at 12:05 pm

The more you expect government to do, the more things become politicized.

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59 A Truth Seeker October 10, 2017 at 12:13 pm

The government aways controlled the tax rate and always comtrolled sexual violence even if the definition expanded a little.

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60 A Truth Seeker October 10, 2017 at 11:22 am

“Last week, Vox’s Matt Yglesias pointed out that the $21.1 billion accumulated by the top twenty-five hedgies in 2013 was more than the combined salaries of all the kindergarten teachers in the country.” – https://www.newyorker.com/news/john-cassidy/the-great-hedge-fund-mystery-why-do-they-make-so-much

Greed is swalling America’s soul and destroying American society. Americans have sold their children in bondage to Moloch.

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61 Rtd October 10, 2017 at 11:59 am

But we already knew that the primary skill of Vox & Yglesias are creating clickbait – why bring up a useless comparison here?

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62 A Truth Seeker October 10, 2017 at 12:11 pm

America is spending more money feeding fat cats than taking care of its future. A desperate populace elected Trump to punish corporate Democrats and Republicans.

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63 AL October 10, 2017 at 11:41 am

Safe assumption here is Obama was offering something GOP wanted as a carrot to induce deal-making. Which obviously didn’t happen. The reasons for that are maybe more worthy of exploration than implying Dems were once for corporate tax cuts and are now against them. Or did I misread you?

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64 rayward October 10, 2017 at 12:09 pm

Of course, the Republican strategy during the Obama years was obstructionism: not do anything that would either make Obama look good as a leader or improve the economy and make Obama look good as a president. Obama more than once offered lower rates in return for broadening the base, and the Republicans rejected it every time. Trump’s tax cut proposal, such as it is, specifies rate cuts but not the offsetting elimination of so-called loopholes, instead providing a vague promise to close unspecified loopholes. Just to take one example of Obama’s willingness to compromise with Republicans, he accepted an increase in the estate tax exemption amount to $10 million per couple (increased to almost $11 million with cost of living adjustments). Of course, it wasn’t a real compromise, as it had the effect of eliminating the estate tax (the “death tax” as Republicans call it) as a concern for anyone other than what I would describe as wealthy, a brilliant political move by Obama and a “compromise” Republicans no doubt regret.

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65 dan1111 October 10, 2017 at 12:29 pm

Obama’s corporate tax plan raised taxes over all, and also had some ideas that conservatives consider disastrous–especially taxing U.S. corporations on overseas earnings even if they are not repatriated. This would likely drive U.S. companies to move overseas.

There was certainly a principled case for rejecting this “compromise”.

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66 Vivian Darkbloom October 10, 2017 at 3:37 pm

From the last page of the of the Trump/Big Six tax proposal outline:

“To prevent companies from shifting profits to tax havens, the framework includes rules to protect the U.S. tax base by taxing at a reduced rate and on a global basis the foreign profits of U.S. multinational corporations.”

Taxing US corporations on overseas earnings even if they are not repatriated? Maybe the authors are not “conservative”.

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67 bill October 10, 2017 at 1:18 pm

Imagine a world where Republicans would have just said “OK” to a 28% rate.

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68 Troll Me October 10, 2017 at 6:34 pm

2012 was not 2017, and vice versa.

If there is to be a tax cut, is fall 2017 a good time to do so from a business cycle perspective?

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69 Jim Bang October 14, 2017 at 7:31 pm

This post is a fairly dishonest cherry picking of the 2012 proposed tax plan by Obama. While that plan did lower corporate rates (something a lot of Dems might be open to by the way) it also established a minimum tax on foreign earnings, raised capital gains taxes, and also raised top marginal rates. So at least it balanced the corporate cuts with increases.

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