Obama to Urge Business Tax Rewrite to Help Spur New Jobs – Bloomberg

President Barack Obama, seeking to offer fresh economic proposals that could pass a gridlocked Congress, will call for a restructuring of business taxes so long as the initial revenue generated goes toward job creation.

In a speech today in Chattanooga, Tennessee, Obama will argue that years of budget fights have diverted attention from the need to help middle-income Americans recover from the recession, according to administration officials.

As an alternative to seeking quick passage of the deficit-reduction formula that has eluded lawmakers for two years — a mix of increased tax revenue and entitlement curbs — Obama will propose spending more to help manufacturing, worker training and infrastructure improvements that create jobs.

“The president is putting forward a new kind of ‘grand bargain’” for middle-class jobs, Gene Sperling, Obama’s director of the National Economic Council, said in a conference call with reporters today.

Under the proposal, Obama would seek a business tax change that produces a one-time revenue gain, and that would be earmarked for the repair of roads and bridges or other public works, innovation centers for manufacturing and community college training to close skill gaps.

Short-term gains in tax collections can’t be used to lower tax rates, Sperling said. He said long-term changes in corporate taxes should be revenue neutral.

Republican Reaction

Republicans quickly dismissed the White House plan.

“It represents an unmistakable signal that the president has backed away from his campaign-era promise to corporate America that tax reform would be revenue-neutral to them,” said Senator Mitch McConnell of Kentucky, the Republican leader.

The jobs-related programs would be funded by a one-time transition fee associated with the $2 trillion in foreign earnings that are currently held overseas, said an administration official who asked not to be identified to discuss details before the speech.

The officials declined to specify how much money would be generated and didn’t detail how it would be structured. The proposal marks a shift for Obama, who has previously called for rewriting individual and business income tax law together.

Eliminating Breaks

Obama, in February 2012, proposed reducing the top corporate rate for most companies to 28 percent from 35 percent. The plan would eliminate tax breaks and change core tax code features such as interest deductibility. He’s also proposed lowering the rate for manufacturers to 25 percent and expanding and making permanent the research-and-development tax credit.

Today’s speech, at an Amazon.com Inc. distribution center, is the latest in Obama’s campaign-style effort to turn attention back to the economy as he heads into fresh budget fights with Congress over funding the government and raising the debt ceiling.

While officials said Obama isn’t abandoning efforts for long-term deficit reduction, they said the new proposal is an acknowledgment that talks toward a long-term fiscal solution are at an impasse.

In other White House changes, Obama is proposing a permanent increase in expensing for small business to $1 million a year, Sperling said.

The president also plans to issue executive orders, one of which would increase to 45, from 15, the number of innovative manufacturing hubs created over the next decade.

Jobs Conference

Obama is calling for a two-day conference Oct. 31 and Nov. 1 to encourage foreign companies to locate jobs in U.S. He also plans a conference with chief executive officers later this year to seek more hiring of the long-term unemployed.

Sperling said the administration consulted with unidentified Democratic and Republican leaders before offering the new plan for a rewrite of corporate taxes.

He said some prominent Republican lawmakers “have suggested why don’t we do corporate tax reform alone,” and set aside changes in individual taxes.

“What the president is saying is that he is willing to consider breaking that off, as some have suggested,” Sperling said.

Overseas Earnings

The idea of taxing approximately $2 trillion in accumulated overseas earnings as a transition to a new system resembles a proposal from Representative Dave Camp, chairman of the House Ways and Means Committee. Spending the proceeds on jobs programs, though, may run counter to the Michigan Republican’s goal of a revenue-neutral approach.

Camp’s 2011 draft would require companies to pay 5.25 percent on all offshore funds, regardless of whether they are brought home. He plans to include that in legislation he wants to move through his committee this year.

Under the current tax system, U.S.-based companies must pay the U.S. rate of 35 percent on all the income they earn around the world. They get tax credits for payments to foreign governments and don’t owe the U.S. unless they bring the profits home. Companies such as Caterpillar Inc. and United Technologies Corp. have called for the U.S. to switch to a so-called territorial system that wouldn’t tax most future offshore earnings.

Territorial System

Camp’s plan would use the one-time tax to finance the territorial system, which costs the government some revenue each year. He hasn’t released a detailed revenue estimate; the loss of the one-time money, which is payable over eight years, has the risk of creating a budget hole. Obama has opposed a pure territorial system.

Both Camp and Obama have resisted a one-time holiday for repatriation, which companies such as Cisco Systems Inc. and Google Inc. have preferred and lobbied for in 2011.

Obama will make a rare trip tomorrow to Capitol Hill where he’ll meet separately with Senate and House Democrats.

Former Commerce Secretary Carlos Gutierrez, who served under President George W. Bush, said today that Obama’s latest proposal is nothing more than a tax increase.

“They’re trying to raise revenues, which is the last thing I think the government needs,” Gutierrez said on Bloomberg Television’s “Surveillance” program.

“There’s confusion in this administration regarding who creates jobs,” the former chairman of Kellogg Co. said. “They think, they really do think, that the government’s role is to create jobs,” he said.

‘Fundamental Misunderstanding’

“There’s a fundamental misunderstanding on how the economy works,” Gutierrez said.

Even as Obama argues that a rapidly decreasing deficit has pushed the issue of jobs to the forefront, the congressional calendar may dictate otherwise. When lawmakers return in September from their August recess, they and the president will confront a series of decisions affecting the economy, including determining federal spending levels and raising the government’s $16.7 trillion debt limit.

Republican lawmakers are demanding spending cuts in exchange for raising the debt limit. Obama has pushed for spending increases for infrastructure improvements, expanded educational opportunities and more support for research — a recurring drama in fiscal negotiations since 2011.

Break Cycle

Officials said Obama was looking to break that cycle to help Americans still reeling from the economic meltdown. Even as the economy continues to expand and add jobs four years into the nation’s recovery from its worst recession since the Great Depression, Americans at the middle of economic ladder haven’t regained lost prosperity.

The economy grew at a 1.8 percent rate during the first three months of the year, more slowly than its 2.5 percent average pace during the last two decades. The unemployment rate, at 7.6 percent in June, remains above its 6 percent average over the past 20 years.

While the benchmark Standard & Poor’s 500 stock index is up more than 18 percent this year and has almost doubled since Obama took office in 2009, the median household income of $51,500 in May is 5 percent lower than in June 2009, the official end of the recession, according to estimates by Sentier Research.

Yesterday, Amazon announced that it was adding more than 5,000 full-time jobs at facilities like the one Obama is visiting. The company plans to open five more warehouses this year after adding 20 last year.

Chief Executive Officer Jeff Bezos has sought to open centers full of products closer to consumers, to reduce shipping costs and speed delivery. Median pay at the company’s packaging centers is 30 percent higher than traditional retail jobs, according to the retailer.

To contact the reporter on this story: Julianna Goldman in Washington at jgoldman6@bloomberg.net

To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net