Over in the United States, it appears that President Obama and House Republicans are no closer to achieving a compromise on the role of tax increases in the country’s fiscal deficit reduction package. In his State of the Union Address last Tuesday, Obama reasserted his position that the answer lay in increasing spending cuts by USD900 billion, and increasing tax revenue by USD600 billion. He emphasized that the US should save hundreds of billions of dollars by closing tax loopholes and deductions for wealthy individuals as well as corporations.

Republicans, led by House Speaker John Boehner, reacted as expected. Boehner said that it was impossible for the US to grow the middle class and create jobs by “growing government and raising taxes.” He also bemoaned the fact that Obama appeared to have chosen a “go-it-alone” approach to the deficit reduction plan, despite the results of the recent election that divided the government and “offers a mandate only to work together to find common ground.”
In his address, President Obama also proposed an “offshoring tax” which would set a minimum tax on offshore earnings to encourage domestic investment, but details of the tax were not made clear.

Jeffrey Lew, Obama’s Treasury Secretary nominee echoed his boss’ sentiments, saying that the key to cutting the deficit lay in spending cuts and new tax revenue. In one of his appointment hearings, however, he acknowledged that the nation’s 39% corporate tax rate isn’t competitive with other developed countries, and agreed that lowering it to around 28% was something that would be examined.

Is an ‘offshoring tax’ the way to go? Is being more competitive, in regards to corporate tax rates, with other developed countries crucial? Is tax the only motivator for US corporations to invest more domestically?