Thursday, February 23, 2012

Obama Cut Corporate Tax to 28% & Lower Manufacturers' Rate

Last year, CBS 60 minutes exposed that some U.S. corporations managed to escape the loop holes of the U.S. regulations by protecting their profits from the U.S. corporate tax of 35 percent, which is the highest tax in the world. Thus, many US companies register their headquarters as well as moving some of their operations in Europe ie. Switzerland in order to enjoy the tax havens.

As such, President Barack Obama announced to slash the corporate tax from 35 percent to 28 percent on 22nd February 2012, hoping that more U.S. companies are moving their operations and creating more job opportunities in the United States. 

Will this new regulation help to improve the U.S. economy?



Obama to CUT corporate tax to 28% and set even lower rate for manufacturers

  • Dozens of loopholes will be removed under plan
  • Firms trading overseas 'taxed on foreign earnings'
  • Payroll tax cut for millions of Americans extended yesterday
By Daily Mail Reporter
Last updated at 11:13 AM on 22nd February 2012

The corporate tax rate for U.S. businesses is set to be slashed from 35 to 28 per cent - with further help given to manufacturers who will enjoy an even lower rate.

President Barack Obama today laid down an election-year marker in the debate over taxes as he added that firms, in turn, would give up dozens of loopholes and subsidies they now enjoy. 

Corporations with overseas operations would also face a minimum tax on their foreign earnings.

Pleased: U.S. President Barack Obama speaks in front of workers during an event about the payroll tax cut extension on Tuesday at the White House
Pleased: U.S. President Barack Obama speaks in front of workers during an event about the payroll tax cut extension on Tuesday at the White House

The plans dovetail with his call for raising taxes on millionaires and maintaining current rates on individuals making $200,000 or less.

It also comes the day after he extended a payroll tax cut already in place for millions of Americans which was due to expire at the end of the month.

Congress overwhelmingly passed the $143billion measure on Friday to extend a 2 percentage point reduction in the tax that funds Social Security.
It also extends jobless benefits for the long-term unemployed and averts a big cut in reimbursements doctors get for treating Medicare patients.

Treasury Secretary Timothy Geithner is today expected to detail aspects of Obama's proposed overhaul of the corporate tax system, a plan Obama broadly outlined in his State of the Union speech last month.

Chances of accomplishing such change in the tax system are slim in a year dominated mostly with presidential and congressional elections. 

Good news: The corporate tax rate for U.S. businesses is set to be slashed from 35 to 28 per cent (picture posed by model)
Good news: The corporate tax rate for U.S. businesses is set to be slashed from 35 to 28 per cent (picture posed by model)

But for Obama, the proposal is part of a larger tax plan that is central to his re-election strategy.

The 35 per cent nominal corporate tax rate is the highest in the world after Japan. But deductions, credits and exemptions allow many corporations to pay taxes at a much lower rate.

Under the framework proposed by the administration, the rate cuts, closed loopholes and the minimum tax on overseas earning would result in no increase to the deficit.

That means many businesses that slip through loopholes or enjoy subsidies and pay an effective tax rate that is substantially less than the 35 per cent corporate tax could end up paying more under Obama's plan. 

Even further: Former Massachusetts Governor Mitt Romney said he would introduce a 25 per cent corporate tax rate
Even further: Former Massachusetts Governor Mitt Romney said he would introduce a 25 per cent corporate tax rate

Others, however, would pay less while some would simply benefit from a more simplified system.

A senior administration official said the Obama plan aims to help U.S. businesses, especially manufacturers who face strong international competition. 

The plan would lower the effective rate for manufacturers to 25 per cent while emphasising development of clean energy systems. 

Many members of both parties have said they favour overhauling the nation's individual and corporate tax systems, which they complain have rates that are too high and are riddled with too many deductions.

The corporate tax debate has also made its way into the Republican presidential contest. 

Former Massachusetts Governor Mitt Romney has called for a 25 per cent rate, while former House Speaker Newt Gingrich said he would cut corporate tax to 12.5 per cent.

Rick Santorum said he would exempt domestic manufacturers from the corporate tax and halve the top rate for other businesses.

While Obama has been promoting various aspects of his economic agenda in personal appearances and speeches, the decision to leave the corporate tax plan to the Treasury Department to unveil signalled its lower priority.

What is more, the administration's framework leaves much for Congress to decide - a deliberate move by the administration to encourage negotiations but which also does not subject the plan to detailed scrutiny.

Obama's plan is not as ambitious as a House Republican proposal that would lower the corporate rate to 25 per cent.

Still, Obama has said corporate tax rates are too high and has proposed eliminating tax breaks for American companies that move jobs and profits overseas. 

He also has proposed giving tax breaks to U.S. manufacturers, to firms that return jobs to the country and companies that relocate to communities that have lost big employers.

Geithner told a House committee last week the administration wants to create more incentives for corporations to invest in the United States.

'We want to bring down the rate, and we think we can, to a level that's closer to the average of that of our major competitors,' he said.

(Source: http://www.dailymail.co.uk/news/article-2104725/Obama-CUT-corporate-tax-28-set-lower-rate-manufacturers.html#ixzz1nEo1Xk9M)


HALF of Americans don't pay income tax despite crippling government debt

  • 151.7m people - 49.5% of the U.S. population - paid no federal income tax in 2009, figures show
By Daily Mail Reporter
Last updated at 11:21 PM on 22nd February 2012

Only half of U.S. citizens pay federal income tax, according to the latest available figures.
In 2009, just 50.5 per cent of Americans paid any income tax to the federal government - the lowest proportion in at least half a century.

And the number of people outside the tax system could have climbed even higher since as the economic downturn has continued to bite and unemployment has remained high.
Figures: This graph from the Heritage Foundation shows that half the population of the U.S. pays no federal income tax at all
Figures: This graph from the Heritage Foundation shows that half the population of the U.S. pays no federal income tax at all

The decreasing number of taxpayers threatens government revenues, and could also cause resentment from those who believe that welfare recipients are taking money out of the economy.

151.7million U.S. citizens paid no federal income tax in 2009, according to figures compiled by the Heritage Foundation, a right-wing think tank.

In 1984, the middle of the Reagan era, 85 per cent of Americans paid federal income tax, meaning just 34.8million people did not.
The figures include children, the retired and others who do not participate in the labour force.

Nonetheless, they largely reflect the sudden jump in the unemployment rate after the 2008 financial crisis and subsequent recession.

Unemployment rose from around five per cent at the beginning of 2008 to a high of 10 per cent in October 2009.

Crisis: Unemployment has declined slowly under Barack Obama
Crisis: Unemployment has declined slowly under Barack Obama

As well the increased number of jobless people, the reduction in the number of taxpayers is a result of low-income workers taking pay cuts and reduced hours, and therefore slipping out of the tax system.

It also includes people who illegally fail to file a tax return even though they might have earned enough money to do so.

Another finding by the Heritage Foundation shows that 21.8 per cent of U.S. citizens receive financial assistance from the federal government.

This means that 67.3million people - a record high - are 'dependent on the federal government', excluding government employees who rely on the public sector for their salaries.

The conjunction of fewer taxpayers with higher welfare payments has led to intense pressure on the public purse, with the national deficit running at $1.3trillion per year.

The Heritage Foundation argues that the reduction in the number of taxpayers will create an electorate dominated by non-taxpayers, who will always support higher taxes and spending because their own money is not at stake.

(Source: http://www.dailymail.co.uk/news/article-2105131/HALF-Americans-dont-pay-income-tax-despite-crippling-government-debt.html#ixzz1nEvBH400)

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