In Treasury plan to overhaul corporate taxes, a political minefield

Video

April 27 (Bloomberg) -- Former U.S. Treasury Secretary Paul O'Neill talks about prospects for an overhaul of the U.S. tax system and raising the federal debt ceiling.

April 27 (Bloomberg) -- Former U.S. Treasury Secretary Paul O'Neill talks about prospects for an overhaul of the U.S. tax system and raising the federal debt ceiling.

More on this Story

View all Items in this Story

Faced with a fledgling economic recovery, the Obama administration sees an overhaul of the corporate tax code as a way to spur growth. But the Treasury plan, which is being reviewed by the White House, could be a political minefield for the president and lawmakers who are occupied with questions about the country’s debt and deficit.

“I find it amazing,” said Ken Kies, a longtime corporate tax lobbyist. “I wouldn’t be surprised if the [White House] political types are going, ‘Are you guys nuts?’ ”

The administration has been wary of discussing the Treasury plan, which would be paid for by closing various loopholes — each of which could unleash its own lobbying storm. And while a senior administration official said a “white paper” laying out the proposals could be released as early as this month, he also warned that disagreements on Capitol Hill could delay any rollout.

The timing is up to the White House, which has many priorities to weigh, the official said, speaking on the condition of anonymity so he could discuss the matter freely.

So far, lawmakers involved in the discussions with Treasury say they have not broached the grittier details of which industries will give up which tax breaks. And some expect the plan will not include specifics.

“There was no discussion of details,” said Rep. Sander M. Levin (D-Mich.), ranking member of the Ways and Means Committee, who twice met with Treasury Secretary Timothy F. Geithner on the matter along with Sen. Max Baucus (D-Mont.), Sen. Orrin G. Hatch (R-Utah) and Rep. Dave Camp (R-Mich.).

Levin said that a major goal of any reform must be to encourage firms to create jobs in this country, noting that Geithner seemed to agree.

Not agreed on the basics

The U.S. corporate tax rate of 35 percent is one of the world’s highest. But subsidies and breaks have created a wide variation in what companies pay. Retailers tend to pay more than technology and pharmaceutical companies, for instance, in part because they do not benefit from credits for research and development.

Industry groups such as the Business Roundtable, a coalition of chief executives of major U.S. multinational companies, argue that lowering the rate would make domestic firms more competitive — and help the U.S. economy.

Yet as a percentage of overall taxes collected, corporations paid 8.9 percent in 2010, compared with about 25 percent in the 1950s.

Even among Democrats, there is disagreement over whether to squeeze more taxes out of corporations as a way of closing the budget deficit. Polling shows that Americans want taxes raised on corporations before they are raised on individuals.

“It’s the low-hanging fruit. To throw it away is weird,” said Bob McIntyre, director of the left-leaning Citizens for Tax Justice.

Levin and Geithner want to keep the the overall amount corporations pay at the same level.

But Rep. Jim McDermott (D-Wash.) said it would be unfair for individuals to bear the burden of paying more taxes to close the nation’s deficit.

“If you’re then going to sit around and talk about how awful the deficit is, and not raise any additional money in this tax reform, it’s a little bit hard to understand what the game’s about except to reduce someone’s tax rates,” said McDermott, a member of the House Ways and Means Committee.

Capitol Hill aides said there are other basic questions, such as whether to tackle corporate tax policy on its own or in tandem with the individual code.

Rep. Dave Camp (R-Mich.), chairman of the Ways and Means Committee, has said that any reform effort should take on the entire federal tax code.

“This comprehensive approach to reform provides the greatest opportunity to transform today’s code to a code that promotes, rather than prevents job creation,” Camp spokeswoman Michelle Dimarob said.

The fight that would erupt over tax reform could torpedo any overhaul. The maze of tax subsidies in the tax code means that one industry’s gain would equal another’s loss. With lawmakers already looking for ways to cut the budget deficit, industries are wary of negotiating on specifics this early.

“It is perilous to be out there right now in this deficit environment to say you’re willing to give something up because you might lose something and get nothing in return,” said Ralph Hellman, senior vice president for government affairs at the Information Technology Industry Council.

‘You go first’

Even if the administration can get Congress to agree on the outlines of the debate, there is still the question of which companies have to give up their tax breaks. “Everybody’s gonna say, ‘I’m for this, but you go first,’ ” McDermott said.

Also on the table is how to handle the thorniest part of the corporate tax code: overseas profits. Republicans and business lobbyists want the country to adopt a “territorial” system that would tax only domestic profits. Many Democrats have resisted this idea, saying it would encourage companies to move jobs overseas.

President Obama has proposed raising more money from international corporate taxes in his budget, but these efforts have not been picked up by Congress. It’s estimated that $1 trillion worth of corporate profits are being held overseas.

 
Read what others are saying