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Sorry, CEOs: Obama Won't Cut Corporate Taxes Anytime Soon

Business groups are angry that President Obama didn't detail any plans for corporate tax reform in his budget yesterday. But the real reason they're upset is that the White House has played them louder than a drum.

While Obama has made general noises about reducing the tax burden on U.S. companies, these overtures have been awfully short on specifics. And for good reason. The White House knows very well that with the 2012 election approaching, slashing the top corporate tax rate of 35 percent and letting multinationals repatriate overseas earnings at a discount would be political suicide. It's never going to happen, at least not in Obama's first term.

Sure, business taxes can fall -- so long as they rise, too
Yes, administration officials have spoken in favor of reducing corporate taxes. But with a notable self-destruct mechanism -- "revenue neutrality." That means cutting taxes in a way that doesn't add to the federal deficit or require hacking away at other government programs. As Martin Sullivan, contributing editor at Tax Analysts and a former Treasury Department economist told me:

What the administration has done is to seemingly make a major concession by advocating a lower corporate tax rate. But they've done that by putting that all-important condition of revenue neutrality, which seems reasonable giving the current environment. They've thrown the ball back into the court of Republicans and the business community for them to find funds to pay for a tax-rate reduction.
The middle passage
In other words, the Obama administration can portray itself as supporting corporate tax reform without doing anything about it. Indeed, when it comes to taxes, the new budget is anathema to big business. It proposes raising rates on oil, gas and coal companies and closing loopholes that let big companies shelter profits abroad. In another twist of the knife for the corporate crowd, Obama would also let the Bush tax cuts for high income-earners lapse at the end of 2012:
"I'm just extremely disappointed," said Caroline Harris, chief tax counsel for the U.S. Chamber of Commerce.
I'll bet. And certainly the CoC looks a little silly here. Tax cuts are a key issue for the Chamber's main constituency -- big companies. It matters less to small businesses, which can reduce their tax burden by operating as an LLC, "S corporation" or general partnership.

It's also true that Obama's budget is less a "roadmap" for the administration's goals than a short-cut through the political middle. Along with stonewalling big companies on taxes, Obama is also proposing to slash programs popular among progressives.

The goal: Woo swing-voters. Polls suggest this segment of the electorate would be appalled at the government giving large tax breaks to large, highly profitable companies. But they also want the feds to cut the deficit. At the same time, Obama effectively refused to touch the third rail of American politics by revealing little of his plans for Medicare, Medicaid and Social Security. That, too, will have to wait. Said Sullivan:

Everything is in holding pattern until 2013, and you can't get to 2013 unless you win 2012.
It's questionable whether that strategy is good for the country. But it's almost certainly good politics.

Thumbnail from Flickr user macprohawaii; Obama image from WhiteHouse.org
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