The new plan would lower the nation’s corporate tax rate to 28 percent from 35 percent. The proposal would also raise the taxes of Democratic boogeymen — including oil and gas companies and multinationals that create jobs overseas — to pay for the reduction in the overall corporate rate.
Shortly after, Romney unveiled a series of deep cuts in personal and corporate income tax rates, the kind of reductions that have become a tenet of Republican economic thinking.
The former Massachusetts governor proposed reducing the rates for individual taxpayers by a fifth, meaning that the highest earners would pay a top rate of 28 percent, compared with 35 percent today. He also suggested taxing corporate profits at a rate of 25 percent.
The topic of taxes is particularly relevant because right after the election, Obama or his Republican successor will have to decide whether to increase taxes to avoid imminent and deep cuts in domestic and defense spending. The next president will also face longer-term questions about how to pay for the nation’s fast-rising entitlement costs.
Yet despite their differences, the dueling proposals shared certain features. For one, they were both short on specifics — in particular, details about which taxpayers would have to pay more to offset the reduction in overall rates.
What’s more, Obama and Romney each sought to inoculate himself against the other’s criticisms.
With his plan to reduce corporate tax rates, Obama is trying to to seem business-friendly, with an eye to bolstering American competitiveness.
“Our business tax system today is bad for economic growth and job creation in the United States,” Treasury Secretary Timothy F. Geithner said in remarks Wednesday. “We want to restore a system in which American businesses succeed or fail based on the products they make and the services they provide, not on the creativity of their tax engineers or the lobbyists they hire.”
Romney’s balancing act
Romney, meanwhile, is trying not to look as if he wants to cut taxes for the rich. He said Wednesday that he would eliminate taxes on capital gains and dividends for people making $200,000 or less and that those making more than $200,000 would face limits on their deductions for items such as charitable contributions.
“I’m going to limit the deductions and exemptions particularly for the higher-income folks,” Romney said. “For high-income folks, we’re going to cut back on that, so that we ensure that the top 1 percent keeps paying the current share they’re paying and more. We want middle-income Americans to be the place that we focus because it’s middle-income Americans who have been hurt by this Obama economy.”
Later in the day, Obama signed into law the Middle Class Tax Relief and Job Creation Act of 2012, which extends the payroll tax cut and emergency jobless benefits.
Obama has made two major sets of tax proposals. He has already called for increasing the maximum tax rate for people making more than $250,000 a year to 39.6 percent and proposed a special minimum tax for people who make more than $1 million per year. He has also advocated scaling back a series of other tax benefits that go predominantly to the wealthy.
Obama followed those personal income tax proposals on Wednesday with his corporate tax plan. The U.S. corporate tax rate of 35 percent is one of the highest in the world, but an abundance of loopholes and deductions enables many businesses to pay far less than that — or nothing at all. As a result, the United States falls in the middle of the range for developed nations when corporate taxes are measured as a percentage of the overall economy.
In his proposal, Obama called for eliminating dozens of different tax deductions. He also wants to impose a minimum tax on multinational corporations so they cannot shelter profits overseas.
And while he would reduce the overall rate paid by companies to 28 percent, he would set an even lower rate of 25 percent for manufacturing firms, reflecting the president’s interest in reviving this sector of the economy. He is also seeking to reduce taxes paid by small businesses.
In the end, Obama is proposing to raise $250 billion in new tax revenue from corporations over 10 years. Geithner said he planned to meet beginning next week with lawmakers to see if they can move forward.
Trade groups representing large companies criticized the Obama proposal for not going far enough to reduce rates. “The framework adds complexity and raises taxes, moving us away from the rest of the world.” said John Engler, president of the Business Roundtable.
Mixed reactions on the Hill
On Capitol Hill, Democrats gave mixed reviews. Senate Finance Committee Chairman Max Baucus (D-Mont.) said the proposal “helps advance the discussion on tax reform,” but he added that “there is certainly more work to be done.”
Republicans, too, were divided. Some said it was not a serious effort and lacked crucial details, while others welcomed the administration’s decision to engage in the discussion over tax policy.
House Ways and Means Committee Chairman Dave Camp (R-Mich.), the GOP’s top tax negotiator, warned of “some policy differences” between the two sides but assured Obama that “this administration will find a ready and willing partner in House Republicans when it comes to comprehensive tax reform that cuts rates to spur economic growth and job creation.”
Edward Kleinbard, a law professor at the University of Southern California who served until recently as the chief congressional tax analyst, said Obama’s framework was not that different than the proposal Camp rolled out last year.
“If you could put Dave Camp and the president in a room over a long weekend, Camp and the president would come out with a deal,” Kleinbard said.
Romney’s tax plan is aimed in part at beating back the primary challenge from his right by former senator Rick Santorum of Pennsylvania. In a summary distributed to reporters, Romney’s campaign characterized the proposed income tax cut as a “bold stroke.”
But Santorum belittled Romney’s proposal, saying it copied his own tax ideas. “Welcome to the party, governor,” Santorum said to applause at a rally in Tucson.
Romney’s campaign officials insisted the tax overhaul would not add to the federal deficit, but they would not detail specific deductions or loopholes they would target to offset a decline in revenue.
“These plans stand in stark contrast to President Obama’s increase in the size of government and his plans to raise taxes on business owners,” said Glenn Hubbard, a top Romney economic adviser.
Obama campaign spokesman Ben LaBolt replied: “Mitt Romney doesn’t understand simple math. He’s giving more tax breaks to millionaires and billionaires . . . and lowering corporate taxes without explaining how he would pay for them.”
Staff writers Lori Montgomery in Washington, Sandhya Somashekhar in Chandler, Ariz., and Felicia Sonmez in Tucson contributed to this report.