Obama proposal for corporate tax reform

Today, the White House and the Treasury Department released The President’s Framework for Business Tax Reform. The main focus of attention is on the proposed reduction of the corporate tax rate to be paid for by eliminating many tax incentives (aka loopholes). This follows the “cut and broaden” strategy advocated by a number of sources.
However, the President’s proposal does not eliminate all incentives. In fact, it has an entire section on strengthening incentives for manufacturing and innovation, including expanding the R&E tax credit. But nothing about a “patent box” or a “knowledge tax credit” for on-the-job worker training.
It also refers to the previous proposals on transfer pricing of intangibles being shifted to low tax jurisdictions (see earlier posting).
Interestingly, Appendix II of the document lists the effective marginal tax rates on new investments. According to this analysis, the effective marginal tax rate for a new investment in intangibles is 6.2% for a corporation and -3.1% for noncoporate businesses. This seem to poster the claim by the Treasury Department of some years ago that intangibles are already favored under the tax code (see earlier postings). However, since the analysis specifically notes that intangibles include R&D, I assume that most of this low effective tax rate is due to the R&E credit. It would be interesting to see the full analysis on all forms of intangibles. And the economic impact of those rate on investment decisions!

One thought on “Obama proposal for corporate tax reform”

  1. The offshoring of IP – and finding ways to promote US growth

    Last week, the Senate Permanent Subcommittee on Investigations held a hearing on offshore tax avoidance issues – as part of a long running series of hearings on the subject. Part of last week’s hearing was on the offshoring IP, mostly…

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