Obama Urges Business Tax Rewrite to Help Finance Jobs Programs

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(Bloomberg) President Barack Obama, prodding Congress to consider fresh economic proposals after two years of gridlock, called for restructuring business taxes so long as the initial revenue generated goes toward job creation.

In a speech today in Chattanooga, Tenn., Obama said years of budget fights have diverted attention from the need to help middle-income Americans recover from the recession.

“I’m willing to work with Republicans on reforming our corporate tax code, as long as we use the money from transitioning to a simpler tax system for a significant investment in creating middle-class jobs,” he said. “That’s the deal.”

Obama is putting aside for now the deficit-reduction formula that has eluded lawmakers for two years, a package of increased tax revenue and entitlement curbs. Instead, the president is saying he’ll support simplifying the corporate tax code with lower rates, with a one-time increase in revenue devoted to spending on manufacturing innovation, worker training and infrastructure improvements that create jobs.

“If folks in Washington really want a ‘grand bargain,’ how about a grand bargain for middle-class jobs?” he said.

Republican Reaction
Republicans quickly dismissed the White House plan. “It represents an unmistakable signal that the president has backed away from his campaign-era promise to corporate America that tax reform would be revenue-neutral to them,” said Senator Mitch McConnell of Kentucky, the Republican leader.

The jobs-related programs would be funded by a one-time transition tax associated with the $2 trillion in foreign earnings that U.S.-based companies currently hold overseas, said an administration official who asked not to be identified to discuss details before the speech.

Short-term gains in tax collections can’t be used to lower tax rates, said Gene Sperling, director of Obama’s National Economic Council, in a phone call with reporters. Long-term changes in corporate taxes should be revenue neutral, he said.

The officials declined to specify how much money would be generated and didn’t detail how it would be structured. The proposal marks a shift for Obama, who has previously called for rewriting individual and business income tax law together.

Eliminating Breaks
Obama, in February 2012, proposed reducing the top corporate rate for most companies to 28 percent from 35 percent. The plan would eliminate tax breaks and change core tax-code features such as interest deductibility. He has also proposed lowering the rate for manufacturers to 25 percent and expanding and making permanent the research-and-development tax credit.

Today’s speech, at an Amazon.com Inc. distribution center, is the latest in Obama’s campaign-style effort to turn attention back to the economy as he heads into fresh budget fights with Congress over government spending and raising the debt ceiling.

Obama called Amazon’s Chief Executive Officer, Jeff Bezos, late yesterday to brief him on the alternate tax plans for corporations, White House spokesman Jay Carney told reporters traveling with the president.

Obama toured the distribution center before his speech, walking along the assembly line and inspecting goods that were being processed and packed for shipping. He told the crowd later that he saw everything from dog food to beard trimmers to protein powder ready for shipping to consumers.

While officials said Obama isn’t abandoning efforts for long-term deficit reduction, they said the new proposal is an acknowledgment that talks toward a long-term fiscal solution are at an impasse.

Tax Changes
In other tax changes, Obama is proposing a permanent increase in expensing for small business to $1 million a year, Sperling said.

The president also plans to issue executive orders, one of which would increase to 45, from 15, the number of centers for manufacturing innovation created over the next decade.

Obama is calling for a two-day conference Oct. 31 and Nov. 1 to encourage foreign companies to locate jobs in U.S. He also plans a conference with chief executive officers later this year to seek more hiring of the long-term unemployed.

Sperling said the administration consulted with Democratic and Republican leaders before offering the new plan for a rewrite of corporate taxes. He didn’t say who they were.

He said some prominent Republican lawmakers “have suggested why don’t we do corporate tax reform alone,” and set aside changes in individual taxes.

Obama “is willing to consider breaking that off,” Sperling said.

Overseas Earnings
The idea of taxing approximately $2 trillion in accumulated overseas earnings as a transition to a new system resembles a proposal from Representative Dave Camp, chairman of the House Ways and Means Committee. Spending the proceeds on jobs programs, though, may run counter to the Michigan Republican’s goal of a revenue-neutral approach.

Camp’s 2011 draft would require companies to pay 5.25 percent on all offshore funds, regardless of whether they are brought home. He plans to include that in legislation he wants to move through his committee this year.

Under the current tax system, U.S.-based companies must pay the U.S. rate of 35 percent on all the income they earn around the world. They get tax credits for payments to foreign governments and don’t owe the U.S. unless they bring the profits home. Companies such as Caterpillar Inc. and United Technologies Corp. have called for the U.S. to switch to a so-called territorial system that wouldn’t tax most future offshore earnings.

Territorial System
Camp’s plan would use the one-time tax to finance the territorial system, which costs the government some revenue each year. He hasn’t released a detailed revenue estimate; the loss of the one-time money, which is payable over eight years, has the risk of creating a budget hole. Obama has opposed a pure territorial system.

Both Camp and Obama have resisted a one-time holiday for repatriation, which companies such as Cisco Systems and Google have lobbied for in 2011.

Obama will make a rare trip tomorrow to Capitol Hill where he’ll meet separately with Senate and House Democrats.

Former Commerce Secretary Carlos Gutierrez, who served under President George W. Bush, said today that Obama’s latest proposal is nothing more than a tax increase.

“They’re trying to raise revenues, which is the last thing I think the government needs,” Gutierrez said on Bloomberg Television’s “Surveillance” program.

‘Fundamental Misunderstanding’
“There’s confusion in this administration regarding who creates jobs,” the former chairman of Kellogg Co. said. “They think, they really do think, that the government’s role is to create jobs.”
Even as Obama argues that the rapidly decreasing deficit has pushed the issue of jobs to the forefront, the congressional calendar may dictate otherwise. When lawmakers return in September from their August recess, they and the president will confront decisions affecting the economy, including determining federal spending levels and raising the government’s $16.7 trillion debt limit.

Republican lawmakers are demanding spending cuts in exchange for raising the debt limit. Obama has pushed for spending increases for infrastructure improvements, expanded educational opportunities and more support for research—a recurring drama in fiscal negotiations since 2011.

Break Cycle
Officials said Obama was looking to break that cycle to help Americans still reeling from the economic meltdown. Even as the economy continues to expand and add jobs four years into the nation’s recovery from its worst recession since the Great Depression, Americans at the middle of the economic ladder haven’t regained lost prosperity.

The economy grew at a 1.8 percent rate during the first three months of the year, more slowly than its 2.5 percent average pace during the last two decades. The unemployment rate, at 7.6 percent in June, remains above its 6 percent average over the past 20 years.

While the benchmark Standard & Poor’s 500 stock index is up more than 18 percent this year and has almost doubled since Obama took office in 2009, the median household income of $51,500 in May is 5 percent lower than in June 2009, the official end of the recession, according to estimates by Sentier Research.

Yesterday, Amazon announced that it was adding more than 5,000 full-time jobs at facilities like the one Obama is visiting. The company plans to open five more warehouses this year after adding 20 last year.

CEO Bezos has sought to open centers full of products closer to consumers, to cut shipping costs and speed delivery. Median pay at the company’s packaging centers is 30 percent higher than traditional retail jobs, according to the retailer.

—With assistance from Richard Rubin and Roger Runningen in Washington. Editors: Steven Komarow, Mark McQuillan.

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