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President Obama yesterday unveiled a corporate tax overhaul that promises to cut the top tax bracket from 35 percent to 28 percent — but which will saddle companies with an added $250 billion in tax levies over the next 10 years by closing loopholes.
The plan, which is viewed as an election-year gambit and is expected to die a quick death on Capitol Hill, is seen by critics as just another effort by Washington to choose business-world favorites.
“Government shouldn’t use the tax code to pick winners and losers,” said Katherine Lugar, vice president of the Retail Industry Leaders Association.
“Unfortunately, the president’s proposal preserves special preferences that give some industries advantages at the expense of others,” Lugar said.
Obama would eliminate loopholes such as: oil and gas subsidies; tax breaks for corporate aircraft; and so-called “carried interest,” which allows private-equity firms to pay a much lower tax rate of 15 percent compared to 35 percent for companies.
Oil and gas companies are among the sectors that stand to lose the most as tax perks associated with exploration and leases, which amount to hundreds of millions annually, are tossed aside.
“It’s politically correct now to beat up oil and gas companies and take away their incentives and tax benefits, but who’s going to pay for [exploration]?” said Dr. Nathan Oestreich, an accounting professor at San Diego State University. “The price at the gas pumps will go up if we take away the tax benefit from the oil companies.”
Among other sectors seen as losers in the overhaul:
* Companies that operate internationally, like Boeing, which currently pay no taxes on overseas profits but would pay an unspecified minimum tax under the Obama plan. This can put companies like Boeing at a disadvantage when competing against overseas rivals.
* Firms like Wells Fargo and GE, which Citizens for Tax Justice found paid a low rate or no tax over several years, would lose their loopholes.
However, Wells Fargo said the results of the study were skewed by its acquisition of rival bank Wachovia and didn’t reflect its true tax hit.
“It is as a result of the Wells Fargo acquisition of Wachovia in 2008 and the related loan losses that Wells Fargo had an unusual tax period during the years reviewed by the Citizens for Tax Justice report,” Wells Fargo said in a statement. “The truth is that over the past 10 years Wells Fargo has paid more than $30 billion in income taxes to federal and state authorities and billions more in other taxes, and it fulfills all tax obligations.”
Winners under the overhaul could include:
* Retailers like Walmart, with little access to loopholes or storing foreign profits overseas, now pay close to the top 35 percent rate and will see their tax bill fall.
* Manufacturers from General Motors to Harley-Davidson would get new rules to capture added incentive for factories, essentially giving them an even lower tax rate of 25 percent.
Analysts said the proposal has few clearly defined numbers at this early stage and is unlikely to be enacted as written.
It also fails to provide much streamlining to help untangle tax codes. Indeed, the proposal would add more red tape for many businesses.
Small businesses, such as a restaurant or real-estate partnership, would also face more tax paperwork, since the overhaul strips out rules that permit them to pass taxes through a venture directly to individual owners. The overhaul would tax the small outfits directly.
“We can’t support corporate tax reform on the backs of the small businesses that represent the majority of job creators in this country,” said Steve Caldeira, head of the 850,000-member International Franchise Association.