New White House Battle: Corporate Taxes
The Obama administration is quietly gearing up for a high-profile launch in May or June on what may turn out to be the most heavily lobbied issue of the year: corporate tax reform.
“This will be a feast for K Street,” said one top aide. Geithner plans to ignite the debate by unveiling a white paper that advocates lowering the top corporate tax rate from the current 35 percent to less than 30 percent and as low as 26 percent, according to aides.
At a time when the two parties can find little common ground legislatively, strategists on both sides tell POLITICO they hope to advance their jobs agenda by finding a way to lower corporate tax rates.
“This would send a reassuring signal to the economy, and is something both parties should support in theory,” a senior administration official said, predicting “a numbers game” in which companies and industries ferociously litigate the fine points.
Treasury Secretary Timothy Geithner plans to ignite the debate by unveiling a white paper that advocates lowering the top corporate tax rate from the current 35 percent to less than 30 percent and as low as 26 percent, according to aides. The proposal is likely to fall between 26 percent and 28 percent.
To pay for that, the proposal will call for closing loopholes and slicing exemptions. The two main ones are a tax deduction for domestic manufacturing and accelerated depreciation for capital equipment.
Aides say Geithner will personally dive into the negotiations. House Speaker John Boehner also sees this as a ripe area for bipartisan cooperation. And House Budget Committee Chairman Paul Ryan included corporate tax reform in his budget, which has been adopted as the GOP’s fiscal blueprint.
Aides predict that corporate tax reform is unlikely to pass as a stand-alone bill but could serve as a sweetener as part of a deal on a 2012 budget or a longer-term plan for reducing the deficit. There is unlikely to be enough time to include it in haggling over an increase in the debt ceiling, which will be needed this summer.
Agreeing on how to rework corporate taxes will be tough, and many aides remain privately pessimistic. But the two sides’ willingness to try to find common ground is a notable departure from their stances on most other contentious issues on the Capitol Hill docket.
Geithner has already begun his campaign with a series of closed-door meetings with CEOs, academics, labor unions and liberal and conservative think tanks. Aides say he was encouraged by the response. At the White House, Jason Furman, principal deputy director of the National Economic Council, is working the issue.
“This won’t be like health care, where you put out specific ideas people have to take or leave,” an administration official said. “We’ll be more than willing to make trade-offs — to look at alternatives that lower the rates and broaden the base,” a euphemism for cutting back on loopholes.
One top business lobbyist, speaking on condition of anonymity, said corporate tax reform should be “the easiest piece” of a complex fiscal bargain “because you have people in both parties in the business community.”
“There’s definitely demand,” the lobbyist said. “Politically, this can get done in a time of economic stress because it is clearly in the frame of helping American businesses compete and innovate and adjust.”
Aides in both parties warned, though, that they see notable hurdles. Some House Republicans are pushing for individual tax reform at the same time, with one top aide contending the administration “is leaving the American family out of the picture.”
“Their interest seems to be big business and whether they can win some corporate friends” ahead of the 2012 reelection campaign, the Republican said.
Opposition is likely to break down regionally and by industries, rather than by party or ideology. Small- and medium-sized businesses without sophisticated tax planning are likely to benefit, while highly international conglomerates might wind up paying higher rates under reform.
Mining does well under the current system. So opposition may crop up in the politically sensitive states of coal country. Technology and pharmaceutical companies see reform as a vehicle for a temporary tax break on overseas profits they bring back to the U.S., known as a repatriation tax holiday. So many big California companies may be for it.
One possibility for the administration white paper is a move toward a more territorial system that is consistent with taxation schemes in the rest of the developed world, focused on taxing profits earned in the U.S. Such a provision would probably include a transitional measure that allowed companies to move profits earned abroad back to the U.S. at a lower tax rate — say, 10 percent.
A Senate Democratic aide said the administration’s plan for a corporate tax overhaul is “definitely viable, but only as some type of grand bargain that includes the rest of the tax code and potentially entitlement reform and spending cuts.”
“There is bipartisan support for corporate tax reform, but it’s the low-hanging fruit,” the Democrat said. “They’re going to want to use it as a lure or incentive to tackle the harder problems. It’s the bunny that runs out in front and gets all the dogs racing.”