Nikhil Kumar: Grand bargain? Barack Obama’s corporate tax wheeze is more a grand fantasy

The only way big companies will pay even 28 per cent is if politicians close every loophole

As bargains go, President Barack Obama’s “grand bargain for middle-class jobs” seemed a sensible one. He suggested a one-time levy on the money big American corporations keep stashed overseas to fund investments in infrastructure, education and hi-tech manufacturing hubs. These are all things that will help spur job creation at a time when unemployment remains high.

In return, the US administration offered a push to lower the corporate tax rate – the reason US companies say they keep so much of their money overseas. Once various loopholes are eliminated, the rate would fall from 35 per cent to 28 per cent, and lower for manufacturers.

“I’m willing to simplify our tax code,” the President said in a speech, because in DC, simplification of corporate taxes has come to mean lowering corporate taxes.

Unsurprisingly, the idea was immediately shot down by the Republicans. They don’t like the idea of using the money raised with such a levy to fund new spending, nor do they favour tackling corporate taxes without at the same time addressing individual taxes.

So why did the President even suggest it, knowing the Republican position and the limited prospect of change therein? Probably because he knew it would make him look good. American businesses have around $2trn (£1.3trn) in earnings laid up overseas, while infrastructure at home is sorely in need of investment. He also knows that Republicans and Democrats in Washington are gearing up for a fresh budget battle over the autumn. So his speech – part of a series on economic issues – was probably just laying the groundwork for coming negotiations.

Despite the disagreements, everyone seems to agree that corporate taxes need to come down to stop American companies from gaming the tax system and to encourage them to bring back some of the money they routinely stash abroad to avoid US taxes. It’s a nice fantasy. Why? Because the only way big companies will pay even 28 per cent is if politicians manage to close every loophole in every part of the tax code – without creating other, new ways for companies to cut their tax bill.

Otherwise, even though President Obama talked about giving companies an incentive to pay taxes on their overseas cash, there is, in fact, little incentive for big business to pay up. According to the Government Accountability Office, while big US corporations officially face a high corporate tax rate of 35 per cent, their average effective federal tax rate is less than 13 per cent. As an aside, the contribution of corporate income taxes to federal government funding in 2012 was around $240bn – a lot lower than the $1.1trn that came from individual income taxes.

Are the Republicans and Democrats about to strike a deal that will force big firms to pay higher taxes – because that is what lowering the corporate tax rate to 28 per cent while closing the various loopholes will amount to? Given the money that corporations and individual business folk spend on political campaigns and lobbying, I’m doubtful.

Battle for Dell turns against activist investor

It was already looking shaky for Carl Icahn and his plan to torpedo Michael Dell’s proposal to take private the computer maker he founded in 1984. To recap briefly, Dell has been struggling to deal with the precipitous decline in the demand for PCs, and Mr Dell wants to take control of it with the help of the investment firm Silver Lake, so that he can restructure it quietly without having to answer to Wall Street investors every quarter.

Mr Icahn, one of Wall Street’s best-known activist investors, stepped in shortly after the go-private deal was tabled, arguing that it didn’t give shareholders enough value. He went on to put up an alternative offer that he said was better aligned with the interests of shareholders.

For a while, Mr Icahn appeared to have the upper hand. He had the support of Southeastern Asset Management and T Rowe Price, both big enough investors for Mr Dell to up his offer twice. But this month Mr Dell persuaded the board to delay a shareholder meeting and change the way shareholder opinion about the deal is polled. The board agreed to defer the meeting till September and changed the rules so that abstentions would no longer count against Mr Dell and Silver Lake.

Mr Icahn went to court. But it was becoming clear that he was on increasingly weak ground after the voting rules were changed. As if to highlight the way the pendulum has swung in favour of Mr Dell, it has now emerged that T Rowe Price has cut its stake in Dell. Sources familiar with the matter told Reuters this week that the asset management firm had trimmed its interest in Dell to 2.8 per cent from 4 per cent, hardly a vote of confidence in Mr Icahn’s efforts to get the better of Mr Dell.

The news will only hamper the activist investor’s efforts to convince shareholders that his plan is the better one. The backing of T Rowe Price didn’t just give Mr Icahn additional votes in his battle against Mr Dell; it gave him credibility, for the asset manager does not have a reputation for activism. When it said that Mr Dell’s original offer wasn’t good enough, everyone listened. Now, it seems to be saying something very different. For Mr Icahn, whose stake-buying in the past has been so effective in steering the direction of Time Warner and Yahoo, this may be one battle he won’t win.

News
More than 90 years of car history are coming to an end with the abolition of the paper car-tax disc
newsThis and other facts you never knew about the paper circle - completely obsolete today
News
people'I’d rather have Fred and Rose West quote my characters on childcare'
Life and Style
The new Windows 10 Start Menu
tech
Arts and Entertainment
There has been a boom in ticket sales for female comics, according to an industry survey
comedyFirst national survey reveals Britain’s comedic tastes
PROMOTED VIDEO
Travel
Bruce Chatwin's novel 'On the Black Hill' was set at The Vision Farm
travelOne of the finest one-day walks you could hope for - in Britain
Sport
footballManchester City 1 Roma 1: Result leaves Premier League champions in danger of not progressing
Arts and Entertainment
Gay and OK: a scene from 'Pride'
filmsUS film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
News
i100
Life and Style
Magic roundabouts: the gyratory system that has excited enthusiasts in Swindon
motoringJust who are the Roundabout Appreciation Society?
Arts and Entertainment
Hilary North's 'How My Life Has Changed', 2001
booksWell it was good enough for Ancient Egyptians and Picasso...
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Trust Accountant - Kent

NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...

Graduate Recruitment Consultant - 2013/14 Grads - No Exp Needed

£18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...

Law Costs

Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...

Day In a Page

Ebola outbreak: The children orphaned by the virus – then rejected by surviving relatives over fear of infection

The children orphaned by Ebola...

... then rejected by surviving relatives over fear of infection
Pride: Are censors pandering to homophobia?

Are censors pandering to homophobia?

US film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
The magic of roundabouts

Lords of the rings

Just who are the Roundabout Appreciation Society?
Why do we like making lists?

Notes to self: Why do we like making lists?

Well it was good enough for Ancient Egyptians and Picasso...
Hong Kong protests: A good time to open a new restaurant?

A good time to open a new restaurant in Hong Kong?

As pro-democracy demonstrators hold firm, chef Rowley Leigh, who's in the city to open a new restaurant, says you couldn't hope to meet a nicer bunch
Paris Fashion Week: Karl Lagerfeld leads a feminist riot on 'Boulevard Chanel'

Paris Fashion Week

Lagerfeld leads a feminist riot on 'Boulevard Chanel'
Bruce Chatwin's Wales: One of the finest one-day walks in Britain

Simon Calder discovers Bruce Chatwin's Wales

One of the finest one-day walks you could hope for - in Britain
10 best children's nightwear

10 best children's nightwear

Make sure the kids stay cosy on cooler autumn nights in this selection of pjs, onesies and nighties
Manchester City vs Roma: Five things we learnt from City’s draw at the Etihad

Manchester City vs Roma

Five things we learnt from City’s Champions League draw at the Etihad
Martin Hardy: Mike Ashley must act now and end the Alan Pardew reign

Trouble on the Tyne

Ashley must act now and end Pardew's reign at Newcastle, says Martin Hardy
Isis is an hour from Baghdad, the Iraq army has little chance against it, and air strikes won't help

Isis an hour away from Baghdad -

and with no sign of Iraq army being able to make a successful counter-attack
Turner Prize 2014 is frustratingly timid

Turner Prize 2014 is frustratingly timid

The exhibition nods to rich and potentially brilliant ideas, but steps back
Last chance to see: Half the world’s animals have disappeared over the last 40 years

Last chance to see...

The Earth’s animal wildlife population has halved in 40 years
So here's why teenagers are always grumpy - and it's not what you think

Truth behind teens' grumpiness

Early school hours mess with their biological clocks
Why can no one stop hackers putting celebrities' private photos online?

Hacked photos: the third wave

Why can no one stop hackers putting celebrities' private photos online?