Economists: To close tax loopholes, Obama would open new ones

Cutting corporate tax rates and deleting loopholes is generally just what most economists prescribe for the tangled U.S. tax code. So why isn’t there more cheering for the plan President Barack Obama unveiled earlier this week to slash the top corporate tax rate and end breaks that allow some companies to pay little or nothing in taxes? Some economists say Obama’s plan would actually upturn the very playing field the administration says it wants to level. Specifically, it would give manufacturers preferential treatment: Tax breaks would effectively cap their rate at 25%, while other companies would pay up to 28%. The current top corporate tax rate is 35%. Some say such varying rates can distort the economy by diverting investment into some industries and away from others that might pack a bigger economic punch. “The administration is not making sense,” says Martin Sullivan, contributing editor at publisher Tax Analysts. “The whole idea of corporate tax reform is to get rid of loopholes, and this plan is adding loopholes back in.” Other economists oppose a separate plank of the Obama plan: a minimum tax on foreign earnings of U.S. multinational companies. No other country imposes such a tax on its companies, they note, meaning U.S. businesses would face a competitive disadvantage. Read the full story from The Associated Press here.