President Barack Obama made an opening offer in what could be a long negotiation with corporate America on Wednesday, putting forward his first detailed plan to cut the corporate tax rate.
President Barack Obama proposed a lower corporate tax rate and an end to dozens of loopholes he said helps US companies move jobs and profits overseas, reports Guardian.
“Our current corporate tax system is outdated, unfair, and inefficient,” Obama said in a statement.
“It provides tax breaks for moving jobs and profits overseas and hits companies that choose to stay in America with one of the highest tax rates in the world … It’s not right, and it needs to change,” he said.
The president wants to lower the US corporate tax rate from the current 35%, the highest in the world after Japan. Under his plan, manufacturers would receive incentives so that their effective tax rate could be even lower.
Though it has little chance of becoming law in an election year with Congress paralyzed over fiscal issues, the plan shows Obama’s intent to favor domestic over offshore manufacturing and to broaden the tax base by closing corporate tax loopholes, according to Reuters.
As lawmakers look to 2013 for the next chance to tackle a comprehensive tax code overhaul, Obama’s plan also puts him in approximate alignment with the major Republican presidential challengers, minimizing corporate taxes as a campaign issue.
“It’s a framework that lowers the corporate tax rate and broadens the tax base in order to increase competitiveness for companies across the nation,” Obama said in a statement.
Corporations would have to give up dozens of cherished loopholes and subsidies that they now enjoy. Corporations with overseas operations would also face an unspecified minimum tax on their foreign earnings.
Obama also would set a minimum tax on the foreign earning of US companies.
Obama’s plan was immediately criticized as inadequate by numerous business groups, while others said the plan was a step in the right direction, but short on details.
Republican reaction was mixed. House Ways and Means Committee chairman Dave Camp said he appreciated the administration’s plan, though it set a corporate tax rate that is higher than the 25% he has proposed. He faulted Obama, however, for not offering a wholesale overhaul of the entire tax system for businesses and individuals.
“While this is a good step by the administration, I will borrow from the president’s own words to Congress from just yesterday: ‘Don’t stop here. Keep going,'” Camp said in a statement. But seantor Orrin Hatch, the top Republican on the Senate Finance Committee, dismissed the president’s plan as a “set of bullet points designed more for the campaign trail than an actual blueprint for fixing our tax code.”
Republican presidential hopeful Mitt Romney on Wednesday unveiled tax proposals of his own, calling for capping the individual income tax rate at 28 percent, down from 35 percent, and slashing the corporate rate to 25 percent.
Romney, the former governor of Massachusetts, on Wednesday proposed a tax overhaul that he said would cut Americans’ tax rates by 20 percent and limit deductions for the wealthy.
His plan included some standard Republican wish list items, such as reducing the top corporate tax rate to 25 percent, eliminating the inheritance tax and repealing the alternative minimum tax. Romney also proposed some limits on tax deductions.
Republican rival Rick Santorum would cut the top corporate tax rate to 17.5 percent and exempt manufacturers from paying it entirely. Newt Gingrich would cut it to 12.5 percent.
Some U.S. companies pay close to the 35 percent top corporate tax rate; some pay nowhere near that, thanks to tax breaks that let them lower their “effective” tax rates.
Of the 30 companies that make up the Dow Jones industrial average, 19 told shareholders that their effective tax rate for their 2011 fiscal years (mostly ending December 31) was lower than Obama’s proposed new tax rate.
Treasury secretary Timothy Geithner, who rolled out the plan on Wednesday morning, acknowledged that the debate “will be politically contentious.”
“Some will say these proposals are too tough on business, and others will say that they’re not tough enough,” he said.