Andy Manis/Bloomberg News
Master Lock?s manufacturing plant in Wisconsin. President Obama wants to give preference to manufacturers by setting their maximum effective rate at 25 percent.
WASHINGTON ? President Obama will ask Congress to scrub the corporate tax code of dozens of loopholes and subsidies to reduce the top rate to 28 percent, down from 35 percent, while giving preferences to manufacturers that would set their maximum effective rate at 25 percent, a senior administration official said on Tuesday.
Mr. Obama also would establish a minimum tax on multinational corporations? foreign earnings, the official said, to discourage ?accounting games to shift profits abroad? or actual relocation of production overseas.
With the framework for changes that the Treasury secretary, Timothy F. Geithner, will outline on Wednesday, Mr. Obama will enter an election-year debate with Republicans in Congress and in the presidential race who seek even lower taxes for businesses. But an overhaul of the corporate code is unlikely this year, given that political backdrop and the complexity of an undertaking that would generate a lobbying frenzy as businesses vie to defend old tax breaks or win new ones.
The announcement comes two days before Mitt Romney, a Republican candidate for president, is expected to expand on his economic platform in Detroit.
The administration plan to revamp a corporate code that is widely derided as inefficient and anticompetitive has been in the works at Treasury for two years, and is a priority of Mr. Geithner. Yet he has been preoccupied with crisis management, and is unlikely to see the project through since he plans to leave office after this year.
The proposed overhaul ?will help level the playing field for businesses and allow the government to collect needed revenue while promoting economic growth,? Mr. Geithner told a Congressional committee last week, without details.
Republicans and business groups complain that the 35 percent corporate tax rate is among the highest in the world, leaving American companies at a competitive disadvantage. They typically seek a 25 percent rate, with many of them saying that the current tax breaks should be kept in place as well.
Nonpartisan tax analysts consistently find that corporations here on average pay just slightly more than their competitors in other developed countries after exploiting the many tax breaks and loopholes. Recent news accounts have highlighted the low effective rates paid by companies like Google, Boeing and General Electric.
One analysis concluded that 115 of the 500 companies in the Standard and Poor?s stock index paid a total corporate tax rate ? federal and otherwise ? of less than 20 percent over a five-year period. A study by the Government Accountability Office in 2008 found that 55 percent of American companies paid no federal income taxes during at least one year in a seven-year period it studied.
?Under the current tax system, the United States will soon have the highest statutory corporate tax rate among developed countries, within a system that features a large number of tax expenditures for special interests,? said a senior administration official, who did not want to speak ahead of Mr. Geithner except on condition of anonymity.
?This puts American businesses ? especially those in areas like manufacturing that are subject to more intense international competition ? at a disadvantage. And this system is also unnecessarily complicated for America?s small businesses.?
Earlier this year, Mr. Obama proposed to end tax breaks for companies that move jobs overseas and to create new breaks for those that bring jobs back.
Corporate taxes make up an increasingly small share of the federal government?s revenue, in part because of tax-avoidance maneuvers by businesses.
Mr. Obama is proposing that the simplification of the corporate code should not add to the deficit, and that most or all revenue raised by closing tax breaks should be used to lower rates or offset the cost of new or existing tax breaks favoring manufacturing, clean energy, and research and development activities, according to administration officials.
Mr. Obama is not proposing to overhaul the tax code for individuals, though he was spoken of it as a goal. Both codes were last revamped a quarter-century ago and the accretion of tax breaks in recent years has given rise to widespread calls, including from Mr. Obama?s 2010 Bowles-Simpson fiscal commission, to overhaul the tax systems in a way that raises enough revenue to both lower rates and reduce annual budget deficits.
But every tax break has its defenders, from homeowners who want their mortgage-interest deduction to corporations protective of depreciation tax breaks.
In October, Dave Camp of Michigan, the chairman of the House Ways and Means Committee, proposed a 25 percent corporate rate without saying how he would offset the sizable revenue loss.
Source: http://g7finance.com/g7finance-news/obama-offers-to-cut-corporate-tax-rate-to-28/
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