WASHINGTON--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.
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.
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.
The president proposed cutting the top corporate rate to 28 percent from 35 percent, addressing a long-standing gripe by U.S. corporations that the rate is too high. It ranks as the second-highest in the developed world, trailing only Japan.
"Our current corporate tax system is outdated, unfair, and inefficient," Obama said in a statement.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.
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. 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 Dec. 31) was lower than Obama's proposed new tax rate. Of these companies, three--telecom company AT&T, Bank of America, and insurance company Travelers--posted a tax gain.
For the other 27 companies in the index, the effective tax rates reported ranged from 2.7 percent for telecom company Verizon Communications to 43.3 percent for oil producer Chevron Corp. These figures are taxes for shareholder accounting but not necessarily what was paid last year because Congress lets companies defer parts of their income tax for future years.
"We are only at the starting point of corporate tax reform, and the road is a long one," said Martin Sullivan, an editor for Tax Analysts and a former U.S. Treasury Department staff member.
The last major rewrite of the tax code came in 1986 under Republican President Ronald Reagan, who raised corporate taxes. Since then, the U.S. tax code has become riddled with deductions, exemptions and loopholes, each one defended by interest groups in Washington with hefty lobbying budgets.
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.
