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Obama's Plan: Raise Taxes on Small Businesses, Lower Taxes for Corporations

3:45 PM, Nov 29, 2012 • By MICHAEL WARREN
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President Barack Obama’s plan to avert the so-called fiscal cliff hinges on increasing marginal tax rates on those earning over $250,000 a year—a group that includes those “millionaires and billionaires” but also includes several hundred thousand small-business owners who file their taxes as individuals. Obama supports raising that rate to 39.6 percent in order to bring in needed revenues. Democrats frequently say these top earners need to “pay their fair share.”

Official portrait of Barack Obama

But at the same time the president is seeking to raise the marginal tax rate on small businesses to 39.6 percent, he wants to lower the tax rate for corporations to 28 percent.

In February, the Obama administration released a “framework for business tax reform” that included a plan to lower the corporate tax rate, which is currently among the highest in the industrialized world, to 28 percent. The plan would also remove loopholes and tax expenditures in order to “broaden the base” of the corporate tax revenues.

“This combination of a broader base and a lower rate would alleviate a number of the significant economic distortions identified above that cause businesses to base investment decisions on tax rules rather than economic returns,” the White House report argued.

If lowering the rates and broadening the base is good for big corporations, then why not do the same for small businesses? 

At a press conference Thursday in the Capitol, I tried to get some answers from Senate majority leader Harry Reid. "Senator Reid, do you support the president’s plan to lower the corporate tax rate to 28 percent?" I asked.

"I am not going to be rude to you, but I just answered that question," Reid responded. "We have made our proposal, and that’s the proposal we have. The president has made a proposal to the Republicans to raise the top rates, and we’re not going to negotiate that here."

But Reid dodged the question, which wasn’t about the fiscal cliff negotiations but a rather simple one about whether or not he supports lowering the corporate tax rate to 28 percent. “So why would 28 percent be good for corporations but 39.6 percent [be good] for small businesses?" I asked. Reid remained silent, then responded to another reporter.

Still, the question remains for Reid and for all Democrats who are “on the same page” with increasing marginal tax rates on top earners: If it’s good for those making over $250,000 a year, including small businesses, to pay a “little more” (in Reid’s words) by way of an increase in the marginal rate, why is it also a good idea for corporations to pay a lower marginal rate? If small businesses need to “pay their fair share,” shouldn’t corporations do so as well?

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