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Obama offers 'grand bargain' on corporate tax rate, infrastructure

U.S. President Barack Obama high-fives an employee of the Daimler Detroit Diesel plant following remarks and a tour in Redford, Michigan, De
U.S. President Barack Obama high-fives an employee of the Daimler Detroit Diesel plant following remarks and a tour in Redford, Michigan, De

By Steve Holland

CHATTANOOGA, Tennessee (Reuters) - President Barack Obama proposed a "grand bargain for middle-class jobs" on Tuesday that would cut the U.S. corporate tax rate and use billions of dollars in revenues generated by a business tax overhaul to fund projects aimed at creating jobs.

The goal, as outlined in his speech to an enthusiastic audience at an Amazon.com Inc facility in southeastern Tennessee, was to break through partisan gridlock in Congress with a formula that satisfies Republicans and Democrats alike.

But there was no sign that congressional Republicans - who have fought nearly every facet of Obama's domestic agenda - would look favorably upon the president's proposal.

The president's plan combined a proposed corporate tax rate cut - desired by Republicans - with new spending on infrastructure projects like roads and bridges as well as education investment - desired by his fellow Democrats.

"I've come here to offer a framework that might help break through the political logjam in Washington and get some of these proven ideas moving," Obama said.

Despite the olive branch, Obama's proposal immediately drew fire from the top Republicans in Congress. Senate Republican Leader Mitch McConnell said, "It's just a further-left version of a widely panned plan he already proposed two years ago - this time, with extra goodies for tax-and-spend liberals."

Bickering broke out as the White House said it had tried to tell aides to John Boehner, the Republican speaker of the House of Representatives, about the plan on Monday but, according to Obama spokesman Jay Carney, "never heard back" from them.

The president, in his speech, also jabbed at Republicans over their support for a proposed oil pipeline from Canada and their continual opposition to his ideas.

The contretemps reflected the hyperpartisan environment that has made negotiations nearly impossible in Washington. Efforts to reach a "grand bargain" between Democrats and Republicans on deficit reduction have been at an impasse for months.

New showdowns over spending are expected in the fall, as Congress confronts an October 1 deadline to pass a bill funding the government and then a White House request to raise the federal borrowing limit, known as the "debt ceiling."

Senior administration officials said Obama is not giving up on a big deficit-cutting package, but since no agreement appears imminent, he is offering a new idea to try to follow through on his 2012 re-election campaign promises to help the middle class.

But his narrow proposal on corporate taxes suggested that Obama had all but abandoned a big deal with Republicans on deficit reduction. He argued the deficit was rapidly declining anyway and no deal seemed near with his political opponents.

'THE WHITE FLAG'

The president cast his latest tax proposal as part of a menu of items he is offering to help the United States pick up its economic game in a competitive world economy.

"If we don't make these investments and reforms, we might as well throw up the white flag while the rest of the world forges ahead in a global economy," he said. "And that does nothing to help the middle class."

Obama wants to cut the corporate tax rate of 35 percent to 28 percent and give manufacturers a preferred rate of 25 percent. He also wants a minimum tax on foreign earnings as a tool against corporate tax evasion and the use of tax havens.

In exchange for his support for a corporate tax reduction, Obama wants the money generated by a tax overhaul to be used to fund such projects as repairing roads and bridges, improving education at community colleges and promoting manufacturing, senior administration officials said.

For his part, Obama, who will need Republican backing for any budget deal, had scathing words for Republican proposals on economic growth.

He spoke dismissively of the proposed Keystone XL pipeline from Canada, which Republicans have urged him to approve because of its economic benefits. The president said it would create only 50 permanent jobs, adding: "That's not a jobs plan."

Obama's plan to cut corporate taxes while also curtail some existing tax benefits would result in a one-time source of revenue. The White House did not say how much money would be raised, but Obama called for $50 billion for infrastructure spending in his State of the Union speech in February.

Republicans contended that by spending the revenue, it would violate Obama's previous commitment to a "revenue-neutral" overhaul of corporate taxes.

Administration officials said they recognize that the climate is difficult in Congress with Republicans adamantly refusing anything that is seen as increasing spending and Democrats in no mood to cut taxes and get nothing for it.

The president, who has failed in several tries to reach a comprehensive fiscal accord with Republicans, accused them of holding a personal grudge against him and called for a good-faith exchange of ideas.

"If folks in Washington really want a grand bargain, how about a grand bargain for middle-class jobs?" Obama said.

"I don't want to go through the same old arguments where I propose an idea and the Republicans just say, 'No,' because it's my idea. So I'm going to try offering something that serious people in both parties should be able to support," he added.

Boehner's spokesman, Michael Steel, criticized the proposal even before Obama's speech, saying: "Republicans want to help families and small businesses, too. This proposal allows President Obama to support President Obama's position on taxes and President Obama's position on spending, while leaving small businesses and American families behind."

(Additional reporting by Mark Felsenthal, Richard Cowan and Susan Heavey; Editing by Fred Barbash and Will Dunham)

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