Obama tax ideas face long odds ahead of election
WASHINGTON (Reuters) - President Barack Obama's bid to get millionaires and multinational companies to pay more taxes may play well with many voters but it faces long odds in the deadlocked U.S. Congress.
Obama used his State of the Union speech on Tuesday to press the case for a new minimum 30 percent tax on Americans earning more than $1 million a year and for tougher treatment of corporations that move jobs out of the United States.
At the same time, he called for tax credits to lure jobs back to the United States.
"Right now, companies get tax breaks for moving jobs and profits overseas," Obama said. "Meanwhile, companies that choose to stay in America get hit with one of the highest tax rates in the world."
Obama, facing a tough re-election campaign, for several years has called for steeper taxes on corporations' foreign profits and closing what he calls tax loopholes that also benefit multinational companies.
Most of these ideas have stalled for years in Congress - even some Democrats say they can wait for a complete overhaul of the tax code.
A tax lobbyist affiliated with Democrats said real debate over the proposed tax changes would have to wait until after the November 6 presidential and congressional elections.
"They would only likely stand a chance in a broader corporate tax reform debate and I just don't think that tax reform is in the cards," the lobbyist said.
Obama and Republicans both say the tax code needs a major rewrite and lawmakers are laying the groundwork for such a reform, but the process is expected to take years. The 35 percent U.S. corporate rate is among the highest in the world and critics say it harms business competitiveness.
Obama is calling for a number of tax policies that could in theory appeal to Republicans, in the name of boosting the flagging economy. For example, he wants to trim tax rates for manufacturers and double a tax deduction for high-tech manufacturing - ideas that might gain some bipartisan backing.
But even that is unlikely in the current environment.
"Tempted as they may be by more tax cuts, anything that smacks of a deal with Obama, or a victory for Obama, especially one that undercuts their theme - however detached from the reality - that Obama is a tax-increaser, will be reflexively resisted by Republicans in both houses," said Norm Ornstein, a congressional watcher at the conservative American Enterprise Institute.
Probably the biggest tax change Obama outlined is a revamp of what he has called the Buffett rule, named for billionaire investor Warren Buffett, to ensure the wealthy pay what he calls a fair share of taxes. Obama proposed a minimum 30 percent tax on millionaires, and eliminating many tax deductions for them - including for housing, healthcare and childcare.
Buffett's secretary - famous for her boss's observation that she pays a higher tax rate than he does - sat in the congressional gallery as a guest of the White House to underscore the point.
A minimum 30 percent tax rate would be about twice the tax rate paid by Republican presidential candidate Mitt Romney in the past two years, according to filings he released on Tuesday.
Lower tax rates enacted under former Republican President George W. Bush are set to expire at the end of this year, setting up a fight over extending them in late 2012.
Obama and Democrats want to let the lower rates for the wealthy expire. Obama said given steep budget deficits, Americans face a choice.
"Do we want to keep these tax cuts for the wealthiest Americans? Or do we want to keep our investments in everything else?" Obama asked.
The top individual income tax rate is now 35 percent, but the superwealthy can enjoy lower rates in some cases if they earn most of their income from investments - as does Romney - which are subject to a 15 percent rate.
A version of Obama's so-called Buffett rule has been promoted by Democrats in Congress as a way to pay for extending the payroll tax cut, but has no chance of passing.
Obama had previously proposed limiting deductions for wealthier Americans to a certain percentage of their income, but he went further in Tuesday's speech to advocate cutting out certain tax breaks completely for millionaires.
Even before Obama spoke, Republicans were blasting the speech as a campaign event.
"No Bailouts, No Hand-outs, And No Cop-outs," read one congressional Republican press release.
(Editing by Mohammad Zargham)