Former presidential candidate and Forbes magazine editor Steve Forbes tells Newsmax.TV that the Obama administration’s plan to cut the corporate tax rate from 35 to 28 percent is really a “house of horrors.”
While the plan outlined today by Treasury Secretary Timothy Geithner would seek an even lower effective rate for manufacturers, the overall plan represents a “not-so-stealth tax increase” that will do more harm than good, according to Forbes, speaking in an exclusive interview on Wednesday.
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“It also plays games in terms of picking winners and losers instead of trying to have a neutral tax code,” Forbes insisted. “You see it in terms of taxing overseas earnings which would be devastating to this global economy, reducing deductibility of interest, trying to put taxes on S-Corps and limited liability corporations which would devastate small businesses, playing games with the oil industry and the aircraft industry, going after life insurance, trying to make deductibility of terms of investments less by giving a premium to inflation. I mean you go down the list and it’s a house of horrors.”
Under the Obama administration’s plan, corporations would have to give up dozens of loopholes and subsidies that they now enjoy. Corporations with overseas operations would also face a minimum tax on their foreign earnings.
The proposed tax rate on dividends would soar to almost 45 percent, and strike yet another blow to America’s economic recovery.
“It’s going to hurt the value of their equities, whether it’s direct ownership through mutual funds or through their pension funds,” says Forbes. “It’s going to reduce the payout. Studies have shown that when the dividend tax was reduced back in 2003 the payouts within a few years tripled. Those are going to be restricted again because it’s cheaper to either hold on to the cash or buy back stock rather than paying it out directly in cash to shareholders. It also means a poorer economy because it puts the capital — freezes capital into companies — instead of freeing it up for reinvestment into start-ups.”
Forbes believes that today’s announcement is nothing more than fuel for Obama’s re-election effort.
“It’s a campaign document as was the State of the Union address,” Forbes said. “He [Obama] knows it’s not going to pass, but he figures he can score points by playing populist on things like oil companies, the aircraft industry and going after overseas investment.”
Barring an attack on Iran, Forbes doesn’t see the price of gasoline rising much past $4.50 per gallon prior to the general election though some experts view the $4 mark as a psychological barrier for Americans.
“It’s not going to help the president, but it’s not going to be a total killer. His overall performance should disqualify him enough,” according to Forbes.
Forbes, nevertheless, believes that an Israeli attack on Iran is likely. “I think they’re going to feel desperate enough, feeling the issues are of such existential nature that they will take action against Iran,” he said. “That’s going to have an unknown impact on oil but it’s going to send it up because insurance rates alone for tankers are going to shoot through the roof because of uncertainty about what happens to the Strait of Hormuz.”
Forbes said that the U.S. economy overall is still “fragile,” although it is likely to show improvement this year over 2011. “It’s the equivalent of being on an open highway. Last year we went 20 miles per hour. This year we might get it up to 35 or 40 when we should be doing 70-75 miles an hour.”
While the Dow Jones industrial average briefly surged past the 13,000 mark on Tuesday for the first time since May 2008, Forbes says it should also be higher.
“It shows the economy is better. But we have to remember in real terms the market is still well below what it was in the late 1990s,” Forbes acknowledged. “We’re still barely back where we were when the crisis started in 2007-2008. Given the enormous productivity we’ve had in the economy, and the technological breakthroughs that continue despite Washington, the market today should be at 16,000 or 18,000.”
He also predicted that another candidate may enter the GOP presidential race if Romney does not do well in his home state of Michigan or in Arizona next week. Those are the last two contests leading up to the all-important Super Tuesday contests, when voters in 10 states go to the polls.
Forbes said that Romney has to demonstrate a passion for the issues, while former House Speaker Newt Gingrich must show that he is focused and former Pennsylvania Sen. Rick Santorum must demonstrate a command for economic issues and “not get caught up on things like Satan.”
He attributed Santorum’s surge to the fact that people are still unhappy with the presidential choices. “We’ll see how well [Santorum] handles it. Newt has let it slip his grasp twice now. Romney looked like he had it in Florida and then blew it,” Forbes explained, adding that Texas Rep. Ron Paul consistently fails to attract more than 10 to 20 percent of the vote.
“With the others out of the race it was Santorum’s turn,” he said.
Forbes also predicted that former Florida Gov. Jeb Bush, who has repeatedly declined to toss his hat in the 2012 presidential race, would get the nomination if he decided to run. “And for vice president we’ve got a lot of exciting possibilities such as [Gov.] Bobby Jindal of Louisiana and [Sen.] Marco Rubio of Florida among others,” said Forbes, who added that he favors Gingrich’s tax plan since Texas Gov. Rick Perry dropped out of the race.
“Having the 15 percent alternative flat tax, I think, is an excellent step in the right direction and I hope that prompts eventually Gov. Romney and the others to follow suit,” he said. “We may — the way this race is playing out — end up getting another candidate or two in before it’s over.”
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