WASHINGTON -- President Barack Obama and Mitt Romney have begun a new form of competition: proposing corporate tax cut plans that they claim, wrongly, won't cost the Treasury a dime. Almost immediately after Obama unveiled his plan on Wednesday, one of the nation's leading tax policy experts threw cold water on the administration's claim that its tax overhaul could be implemented "without adding a dime to the deficit." A separate plan released Wednesday by Republican presidential contender Romney, the expert said, would almost certainly expand the deficit.
The Treasury Department on Wednesday laid out a set of principles for rewriting the corporate tax code. The plan would increase the amount of money the government collects from companies by closing loopholes, but would lower the basic corporate tax rate from 35 to 28 percent. It would also require companies that stash money in offshore tax havens to pay a minimum amount in tax every year and provide a special tax break for manufacturing businesses.
While the plan's basic outlines have been advocated by both liberal and conservative tax experts for decades, the prospect of accomplishing those goals without adding to the deficit is far-fetched, said Rebecca Wilkins, senior counsel for federal tax policy at the nonpartisan nonprofit Citizens for Tax Justice.
"We think at best it's revenue-neutral, and that is very disappointing," Wilkins told HuffPost. "Corporations are already paying a really low rate, and lots of corporations aren't paying any taxes at all. There's really an opportunity to broaden the base and raise revenue, and you hate to see them leaving that on the table."
In the past three years, 30 of the nation's largest corporations have paid zero federal income tax. Less than 10 percent of total U.S. tax revenue currently comes from businesses. For much of the 20th century, that number was closer to 30 percent. As a percentage of total American economic output, corporate tax collections are at historical lows.
Overall, the tax cuts proposed by the Treasury Department would cost about $1.2 trillion during the next decade. The Obama administration outlined plans to narrow that deficit by $300 billion by closing certain business tax loopholes, but roughly $900 billion in other offsets was left unspecified.
In early 2011, Obama first proposed a "revenue-neutral" corporate tax overhaul -- meaning the plan would have had no overall effect on the federal budget deficit. But the 2011 plan did not go into the same level of detail that Wednesday's announcement provided. While the latest announcement does not rule out the possibility that the plan would increase total tax revenues from companies, the administration refused to explicitly discuss such an outcome.
"The President is committed to corporate tax reform that does not add a dime to the deficit," the plan states.
Last year when the administration suggested revenue-neutral corporate tax reform, Chuck Marr said, "At a time when cuts to access to college, cuts to scientific research are on the table, it makes no sense to take corporate taxes off the table." Marr is director of federal tax policy at the Center on Budget and Policy Priorities, a liberal-leaning think tank focused on economic issues.
Romney adviser and economist Glenn Hubbard told reporters on a Wednesday conference call that Romney's latest tax proposal is a "revenue-neutral plan on the corporate side," inadvertently emphasizing the degree to which the Obama overhaul conforms to generally conservative tax principles. But like the Obama administration, Romney's team declined to specify exactly which corporate loopholes would be eliminated in order to pay for the proposed corporate cuts.
The Romney tax plan announced Wednesday was broadly identical to a proposal released several months ago, aside from a new 20 percent across-the-board cut in individual tax rates. The Romney campaign insisted that this proposal would maintain the "progressivity" of the existing tax code, meaning that the total share of taxes paid by the wealthy would remain constant or increase relative to the share paid by the poor, even though all groups would receive tax cuts.
"The across-the-board rate cut ... that's significant," said Roberton Williams, senior fellow at the nonpartisan Tax Policy Center. "That's going to cost a lot of money, and just waving the hand about how to pay for it really makes it hard to know what the effects will be."
While Hubbard insisted that the individual tax plan was also "revenue-neutral," the press release announcing the plan suggests that it would need help from spending cuts and overall economic growth to avoid increasing the deficit. "Stronger economic growth and reductions in spending will help to ensure that these tax cuts do not expand deficits," the release reads.
Moreover, the Romney plan's shift to a so-called territorial international corporate tax system would in fact create an incentive for U.S. corporations to funnel money through offshore accounts to avoid paying taxes. Under the existing U.S. system, companies that stash money in the Cayman Islands do not pay taxes on it until it is brought back to the United States. Under a territorial system, companies never have to pay taxes on those profits, whether they bring them back to the U.S. or not.
"It's just a permanent exemption from tax," said Wilkins.
The Obama administration suggested its proposed global minimum corporate tax rate could prevent companies from skirting their tax bills by pushing money into offshore tax havens. But some small-business advocates are concerned that an excessively low global minimum would have the opposite effect.
"President Obama's outline draws attention to some very important themes, including closing corporate tax loopholes and curtailing the abuse of offshore tax havens, but the devil is in the details," said Scott Klinger, tax policy director of Business for Shared Prosperity, a nonpartisan small-business advocacy group. "Until the president proposes a rate for his global minimum tax, we remain concerned that this positive idea could be turned into a permanent repatriation tax holiday for tax-avoiding corporations."
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