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Friday, March 26, 2004

The Democrats' presidential nominee-in-waiting said he would fight a reluctant Congress and special interests to carry out the most far-reaching changes in international corporate tax law in four decades. Kerry overrode the objections of some advisers who opposed the corporate tax cut on political grounds.

"Time after time, [the Bush] administration has put ideology first and jobs last. Today, I'm announcing a new economic plan for America that will put jobs first," Kerry said in remarks prepared for delivery Friday at Wayne State University.

The plan would face a series of obstacles should the U.S. senator defeat President Bush in November, starting with politically powerful corporations that benefit from the overseas tax breaks he wants to scrap.

Kerry also might be second-guessed by Democrats who would prefer to transfer his plan's savings to more targeted jobs initiatives or programs that benefit middle-class voters.

But he settled on a blend of loophole-cutting populism and business-friendly moderation, casting his package as jobs-producing tax reform. Polls show jobs are the top issue with most voters, and Kerry is viewed as best suited to improve the economy. Terrorism is the No. 2 issue, and most voters say they trust Bush most to protect the nation.

The centerpiece of Bush's economic plan is the across-the-board tax cuts he pushed through Congress, which the president believes will help businesses create jobs. Bush has warned voters that Kerry would raise taxes and recklessly spend their money.

White House spokesman Scott McClellan dismissed Kerry's proposal as a "tax shell game" that he said would not address the issue of jobs going overseas.

"This is nothing but a reshuffling of the tax code and a political shell game and can't erase the fact that John Kerry's record is one of raising taxes some 350 times," McClellan said.

The new initiative, which Kerry said would pay for itself, is part of his overall economic plan to lower the cost of health care and energy, increase investment in education and reduce the federal deficit. Kerry has not fleshed out the cost or other details of his overall spending, but Bush's campaign has made a series of assumptions to conclude he would need to raise taxes by at least $900 billion, a charge the Kerry campaign disputed.

Kerry unveiled the first plank of his economic package in Michigan, a politically important state where 6.6 percent of workers are unemployed. Many of the jobs moved abroad.

"We now have a tax code that has American taxpayers paying to ship jobs overseas," Kerry said. "That makes no sense. And if I am president, it will end."

Tax laws allow American companies to defer paying taxes on income earned by their foreign subsidiaries until they bring it back to the United States. If they keep the money abroad, they avoid paying U.S. taxes entirely.

Kerry would require companies to pay taxes on their international income as they earn it rather than being allow to defer it. The new system would apply to profits earned in future years only, not retroactively.

He would allow companies to defer taxes when they located a business in a foreign country that serves that nation's markets. A U.S. company seeking the tax break could open a car factory in India to sell cars in India, for example, but could not relocate abroad to sell cars back to the United States or Canada.

Kerry's campaign estimates that the change would save $12 billion a year. The savings would be used to reduce the corporate tax rate from 35 percent to 33.25 percent, a 5 percent reduction.

More than 99 percent of companies paying corporate taxes would see their tax bills lowered, the campaign says. But the 1 percent paying higher taxes are some of the nation's biggest and most powerful.

"I know how tough their lobbying will be," Kerry said. "But I believe that's why we have elections in America, so that the people can set us on a new course."

Advisers inside and outside the campaign debated whether to use the $12 billion to cut corporate taxes or target it elsewhere. Some wanted a robust tax credit for employers who create jobs. Kerry opted for a scaled-down version of that initiative.

"The senator made a decision that he wanted this to be a pro-growth, pro-jobs tax reform," said Gene Sperling, a top economic adviser in the Clinton White House who helped Kerry fashion his package. "Instead of looking at this as a way to raise money for other priorities, he wanted this to be a tax reform that was closing loopholes and ending abuses."

Another senior Democrat official advising the Kerry campaign said the candidate missed an opportunity to court middle-class voters. The official spoke on condition of anonymity. Campaign spokeswoman Stephanie Cutter said Kerry had promised to extend Bush's middle-class tax cuts, and has other programs in mind for such voters.

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