MEMPHIS — The chairmen of the congressional tax-writing committees said Monday that a consensus is forming in Washington around a plan to lower rates and close loopholes for U.S. corporations.
But Sen. Max Baucus (D-Mont.) and Rep. Dave Camp (R-Mich.) said they would not proceed with a rewrite of the corporate code unless they can build support for overhauling tax laws that affect individuals as well.
“There is more agreement on the corporate side,” said Baucus, who chairs the tax-writing Senate Finance Committee. “But I think we should use that as an engine for comprehensive reform, not just do corporate and stop.”
Baucus’s remarks put him at odds with President Obama, who this summer offered to resolve the partisan standoff over the budget by rewriting the corporate code and dedicating a one-time spurt of new revenue to long-delayed infrastructure projects. Republicans rejected the proposal, but some analysts argued that Obama had given Baucus the green light to push a corporate-only overhaul through the Democratic-controlled Senate.
On Monday, Baucus rejected that approach during an interview in Memphis, where he and Camp, who chairs the House Ways and Means Committee, made their fourth and final stop in a national tour aimed at building support for the first comprehensive rewrite of the tax code since the Reagan administration.
Camp has long insisted that changes to the corporate and individual codes move in tandem. On Monday, he agreed that “there are a lot of common elements to where the White House is, where I see Max going and where I want to go” on a new corporate code.
But more than half of business activity is taxed through the individual code, Camp said in an interview. “If we want to get the economy moving again, we need to do both,” he said.
Aides for both men have been working all summer on tax-overhaul proposals. Camp vowed to release a draft by the end of this year. Baucus was less certain how quickly his committee could proceed. And neither man seemed optimistic about the odds of advancing a tax overhaul during the coming showdown over the national debt.
“This has got to be striving toward consensus. This is coalition building. This is gathering votes,” Baucus said. “Now that we’re back in session, we’ll pursue those next steps.”
In Memphis, Camp and Baucus heard from business leaders who are frustrated with Washington’s glacial pace. The United States has the world’s highest corporate tax rate, at 35 percent. Though many firms pay nowhere near that amount — and some pay close to nothing in U.S. income taxes — economists and business leaders alike say the high statutory rate is hobbling American competitiveness abroad and deterring investment at home.
“There is a lot of agreement on the corporate side,” said Mike Fryt, a vice president of tax for FedEx, who joined chief executive Fred Smith on a tour arranged for Baucus and Camp of the company’s sprawling hub at Memphis International Airport.
Smith has long advocated lower corporate rates, including in a speech last year at the Economic Club of Washington. There is some frustration that Washington has been unable to move forward, Fryt said. But, he added, “it seems like just a little movement could cause something to happen.”
Over the past few years, the White House has voiced strong support for a corporate overhaul, releasing a Treasury Department white paper and including a mention in several of Obama’s State of the Union addresses. Meanwhile, Camp has issued “discussion drafts” outlining specific proposals that put the two sides “not that far apart,” said economist Douglas Holtz-Eakin, an adviser to the Alliance for Competitive Taxation, a consortium of some of the nation’s largest multinational corporations.
Obama has proposed a 28 percent rate; Camp has proposed 25 percent. Both sides agree the rate reduction could be financed in part by limiting depreciation, especially for publicly traded companies. And both sides agree that a corporate tax overhaul should not raise additional cash over the long term.
Even long-standing differences over how to handle the overseas profits of U.S. corporations have narrowed, with both sides agreeing to end the practice of “deferral” that lets earnings go untaxed as long as they remain overseas. While the two sides differ on the details, “there is general agreement that when money is put in tax havens, U.S. taxes should be paid on that,” Baucus said.
The larger problems: One, the insistence by Republicans and some Democrats to overhaul the complicated individual code at the same time as the corporate code. And, two, “getting Democrats on board,” Holtz-Eakin said, “particularly Harry Reid.”
In July, the Senate majority leader publicly warned Baucus not to move forward unless he can raise significant new taxes from corporations and the wealthy, and he demanded that a tax overhaul produce as much as $1 trillion in new revenue over the next decade. At a roundtable in Memphis featuring a half-dozen FedEx customers, one executive complained loudly about Reid.
“Tell him the villagers are calling him ‘Trillion-Dollar Harry,’ ” said David Dahler of Avionics Specialist, a supplier and manufacturer of aviation parts. “He looks like the stumbling block to me.”