President Obama proposed a major overhaul of the nation’s corporate tax code on Wednesday, an election-year gambit that aims to draw a contrast over a key policy issue with the Republicans vying to replace him.
The plan would lower the nation’s corporate tax rate to 28 percent. At the same time, Obama wants to boost overall revenue from corporate taxation by banning numerous deductions and loopholes that save companies tens of billions of dollars a year on their tax bills.
The current U.S. corporate tax rate of 35 percent is one of the highest in the world, but the abundance of loopholes and deductions enable many businesses to pay far less than that — or nothing at all. Companies in the United States pay almost half the taxes that companies in other rich countries pay, compared with the size of the economy, according to the Organization for Economic Cooperation and Development.
The president’s plan targets oil and gas companies for tax increases while promising special breaks for manufacturing companies.
And in a slap at U.S. multinational corporations that shelter profits overseas, Obama wants those firms to pay a minimum tax on their foreign earnings. He also wants to end tax breaks for companies that outsource and give new tax incentives to firms that move jobs back home.
Marguerite Higgins of the conservative Heritage Foundation argued that such a tax would hurt competition.
“Once again, Obama is going in precisely the wrong direction,” Higgins said in a statement. “Rather than in-sourcing jobs, he would outsource the headquarters and top management of U.S. multinational companies.”
The prognosis for the overhaul plan in Congress is unclear. Many Republicans, including the leading presidential candidates, have favored reducing taxes on businesses well below what the president is proposing.
Former Massachusetts governor Mitt Romney, who has called for a 25 percent tax rate for corporations, is planning to speak on tax reform later this week, while his rivals for the GOP nomination have called for far lower tax rates.
Despite those disagreements, Republicans and Democrats have shown support for a tax strategy that reduces rates across the board while eliminating special-interest loopholes.
“We are going to propose a broad reform that will lower rates, broaden the base and eliminate and wipe out a very substantial fraction, dozens and dozens and dozens of special tax preferences for businesses,” Treasury Secretary Timothy Geithner said in congressional testimony last week. “We’re doing that because we think there’s a compelling economic case for doing that.”
Obama’s proposal to raise additional tax revenue through corporate tax reform is notable because officials had earlier hoped that corporate tax reform would neither add to, nor subtract from, annual budget deficits.
Now officials are counting on corporate tax reform to make a modest but still significant contribution to deficit reduction. And Obama has become more assertive in his push to raise taxes to help keep spending and revenues in check.
Obama has not offered a detailed blueprint for overhauling the personal income tax code — also full of loopholes and deductions — other than calling for higher taxes on the wealthiest Americans. Such a blueprint is not expected to come before the November presidential election.
Corporate tax reform has been a pet project of Geithner’s for more than a year and a half. Last year, the Treasury Department finished a detailed white paper on the issue, but it was put on the back burner during the acrimonious debate in Washington over the federal debt.
Staff writer Lori Montgomery contributed to this report.