Even corporate tax reform — one of the few legislative initiatives President Obama and a new Republican Congress could feasibly work together on — is considered unlikely under current political conditions by some Capitol Hill observers.
In a joint op-ed published in The Wall Street Journal following a Republican blowout in the midterm elections, House Speaker John Boehner and Senate Minority Leader Mitch McConnell said reforming “the insanely complex tax code that is driving American jobs overseas” will be a top priority in the new Congress, and expressed their desire to work with the president to get things done.
Obama and Senate Majority Leader Harry Reid told McConnell in separate phone calls they’d like to work together where possible. ”The president’s indicated he’s interested in doing tax reform,” McConnell said in a press conference Wednesday. “We all know having the highest corporate tax rate in the industrialized world is a job exporter.”
Republicans and Democrats generally agree the current corporate tax rate is too high, because it’s pushing American businesses and jobs overseas. Obama has proposed a plan that would lower the federal rate from 35 percent to 28 percent, close corporate tax loopholes, and reform the international tax system so that businesses are not incentivized to keep foreign income abroad.
He mentioned his plan as a potential starting point for negotiation, and said he’s sure he and Congress can “find ways to work together” in a press conference Wednesday. “There is an opportunity for us to a tax reform package that is good for business, good for jobs, and can potentially finance infrastructure development here in the United States.”
“Now, the devil is in the details,” he added.
Republicans want a lower corporate rate than Obama proposed — closer to 25 percent. Both parties want to tackle loopholes and simplify the code, but that’s easier said than done, and would mean taking on the powerful big businesses currently benefitting from them.
Republicans want to use any revenue to finance a broader overhaul of the tax code that includes individual rates, but Obama wants to use the revenue to invest in infrastructure.
When it comes to taxing profit U.S. businesses make abroad, both parties agree the current system, which only taxes foreign income that makes its way back to the States, incentivizes businesses to invest and hide that money abroad at the expense of the U.S. economy. But Republicans favor a territorial system that would remove the foreign income tax, whereas Obama favors a worldwide system that would levy a tax on U.S. businesses income regardless of where it originates.
Adding to the chief difficulty of finding common ground is the political danger to both parties if they only focus on corporate tax reform. Neither want to be seen as focused on big business at the expense of the middle class, and convincing individual Americans and the many businesses and investors who file under the individual tax code they would benefit would be tricky.
“Lawmakers will be wary of appearing to help corporations with their tax concerns while ignoring those of millions of ordinary Americans,” Cathy Koch, Reid’s chief tax and economic adviser recently told Politico.
Utah Republican Sen. Mike Lee echoed that thought when he outlined his strategy moving forward. “The GOP’s biggest branding problem is that Americans think we’re the party of Big Business and The Rich,” he wrote in an op-ed published Thursday in the Federalist. “If our ‘Show-We-Can-Govern’ agenda can be fairly attacked as giving Big Business what it wants—while the rest of the country suffers—we will only reinforce that unpopular image.”
The stage is set for a fight over immigration that could further reduce the likelihood of an agreement on tax reform. ”Finding common ground is going to be hard work,” Boehner said Thursday. “But it will be even harder if the president isn’t willing to work with us.” (RELATED: Priebus: Obama Executive Amnesty Is A ‘Nuclear Threat’)
Obama reiterated his promise to take unilateral action on immigration by granting amnesty to millions of illegal aliens if Congress doesn’t act on immigration. Boehner in turn said unilateral action would “poison the well” and kill any chance of immigration reform in Congress.
“I don’t think anyone should be under the impression Obama will sign anything Republicans like,” Dan Holler, communications director at Heritage Action, told The Daily Caller News Foundation.
Rather than give the president a legislative victory on corporate tax reform, Republicans could pass a bold and comprehensive reform — likely authored by Wisconsin Rep. Paul Ryan, who is set to chair the Ways and Means Committee — and force Obama to veto it. (RELATED: Paul Ryan Shoo In For Ways And Means Chair)
“Tuesday showed us how politically expedient it is for Republicans to have a politically unpopular Obama in office,” an aide to a GOP Ways and Means Committee member told The Daily Caller News Foundation “Heading into 2016, I don’t see why Republicans would have any reason to allow him to claim victory on something like a bipartisan tax reform.”
“I think we will do tax reform, but we will do it our way and put it on his desk,” he added. “He can either capitulate, or veto and take the heat for it.”