The Obama administration will release details on Wednesday about its proposal to reduce the 35 percent corporate tax rate and eliminate tax breaks, said administration officials familiar with the plan.
The Treasury Department will outline the proposal, according to the officials, who briefed reporters on condition of anonymity. They didn’t discuss details of the administration’s proposal.
Treasury Secretary Timothy F. Geithner said during congressional testimony on Feb. 15 that the administration would release a proposal that is “more than principles but less than fully articulated legislative language.”
He said the proposal would include a lower corporate tax rate and the elimination of dozens of tax breaks. The administration will propose retaining breaks that directly support investment in the U.S., he said.
“We’ll have a very important debate about which of those types of incentives we should preserve, which ones we can’t afford any longer,” Geithner told the House Ways and Means Committee.
The current U.S. corporate tax rate is the second-highest marginal rate in the world. Effective tax rates on U.S. companies are below 30 percent, in line with the tax burden in other major economies.
Companies such as United Parcel Service Inc. and Macy’s Inc. have been urging a reduction in the corporate tax rate. Other companies, including Apple Inc. and Google Inc., have been lobbying for a tax holiday on profits earned outside the country.
Any revenue-neutral change would tend to raise taxes on companies that benefit from many tax breaks, such as drugmakers and technology companies, while lowering payments for retailers and others that don’t get many tax breaks under the current system.
The U.S. expects to collect $236.8 billion in corporate income taxes, or 1.5 percent of gross domestic product, in the fiscal year ending Sept. 30.
The administration has been working on a corporate tax overhaul for more than a year. In his 2011 State of the Union address, President Barack Obama blamed “a parade of lobbyists” for the complex tax code that leaves companies with disparate tax rates.
“Get rid of the loopholes,” he said. “Level the playing field. And use the savings to lower the corporate tax rate for the first time in 25 years –- without adding to our deficit. It can be done.”
This year, Obama’s speech focused on international tax avoidance and said he wanted to remove tax provisions that he said encourage companies to move jobs outside the country.
“From now on, every multinational company should have to pay a basic minimum tax,” he said. “And every penny should go towards lowering taxes for companies that choose to stay here and hire here in America.”
The administration’s budget, released Feb. 13, didn’t provide details on the minimum tax. It included corporate tax provisions the administration has previously tried and failed to advance in Congress.
Rep. Dave Camp, a Michigan Republican who is chairman of the House Ways and Means Committee, has released part of a proposed corporate tax overhaul. Camp proposed a 25 percent top rate and changes to the international tax system that would allow companies to avoid paying U.S. taxes on most of the income they earn outside the country.
Last week, Camp urged Geithner to propose a comprehensive tax-code overhaul that would include changes to corporate and individual taxation.
The proposals from the administration and Camp are designed not to increase the federal budget deficit, in contrast with policies promoted by the Republican presidential candidates.
Mitt Romney, the former Massachusetts governor, wants to reduce the corporate tax rate to 25 percent before eliminating any tax breaks. Rick Santorum, the former Pennsylvania senator, wants to cut the rate to 17.5 percent and eliminate corporate taxes for manufacturers.
Newt Gingrich, the former House speaker, wants to cut the rate to 12.5 percent and let companies write off all capital investments immediately.
To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net
© Copyright 2013 Bloomberg News. All rights reserved.