We all know that the corporate tax system is a mess, but President Obama has recently announced that he’d like to simplify the system.
The central aspect of his plan is in two parts—to reduce the top corporate tax rate from 35% down to 28%, and to do away with loopholes and subsidies.
On the surface, this plan isn’t bad—cutting corporate tax rates would help companies repatriate assets, boost their earnings and promote job creation.
But the plan would also establish a minimum tax on multinational corporations’ foreign earnings. I’ve written before that investors would be shocked by how many U.S.-based corporations use their foreign subsidiaries to reduce their corporate taxes here in the U.S. This annoys me as an investment advisor is because it makes corporations less transparent for investors.
However, because currently foreign earnings are only taxed when re-patriated to the U.S., the Obama plan would actually encourage multi-internationals to leave the U.S. and relocate elsewhere—obviously not a good thing!
Of course, there aren’t many specific details here yet on the plan, and pundits expect that any overhaul of the tax code is unlikely given the political backdrop and the upcoming election in November.
President Obama is likely playing politics with this plan since the election is just nine months away, and so far it sounds like the plan is just the first step in negotiations and isn’t being seriously considered on its own.