REFILE-UPDATE 4-Obama urges US corporate tax cut, closing loopholes

* President seeks 28 pct corporate rate, down from 35 pct
* Proposal is Obama's first tax overhaul package
* Analysts see remote chance of election-year action
* Romney proposes 25 pct corporate rate

By Kim Dixon and Rachelle Younglai
WASHINGTON, Feb 22 (Reuters) - 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"Our current corporate tax system is outdated, unfair, and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.

REAGAN REFORM
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.
Complicating any tax reform effort are congressional and
presidential elections in November, as well as deep divisions in
Congress that have prevented lawmakers from dealing effectively
with tax and budget issues for many months.
Analyst Greg Valliere of Potomac Research Group called the
timing of the Obama plan's release a "cynical ploy" to the
extent it overshadowed Romney's plan. The Obama plan "has
virtually no chance of winning enactment this year," he said.
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.

U.S. MANUFACTURERS FAVORED
Obama last week unveiled a $3.8 trillion
budget-and-tax proposal that called for aggressive government
spending to boost the economy and for higher taxes on the rich.
On Wednesday, he signed into law a bill passed last week by
Congress that extends long-term jobless benefits along with a
payroll tax cut for 160 million workers that runs through the
end of 2012.
The payroll tax cut expiry will coincide with several other
fiscal shocks: expiration of tax cuts enacted under President
George W. Bush; $1.2 trillion in automatic budget cuts across
the government imposed as part of last year's deal to raise the
debt ceiling; another likely encounter with the debt ceiling;
the need to renew "temporary" tax measures; and another
necessary adjustment of the alternative minimum tax.
The confluence of these events, each weighted with
potentially major economic impact, could unleash new momentum
for comprehensive tax reform, but for now proposals along these
lines will largely amount to political messaging, analysts said.
The Obama plan tries to reverse tax incentives for
corporations to relocate jobs and research overseas, while
giving domestic manufacturing operations bigger tax breaks.
In a new twist targeting companies that stash profits abroad
to avoid paying U.S. taxes, the president proposes slapping a
minimum tax on corporate profits earned in low-tax countries,
though his plan did not spell out a rate.
One tax break targeted in the Obama plan is the "carried
interest" loophole that lets managers of private equity and some
other funds pay the 15 percent capital gains tax rate on much of
their earnings instead of the 35 percent top income tax rate.
The plan also takes aim at accelerated depreciation, a major
tax break enjoyed by many companies, but details were scarce.
Business groups were likely to oppose many elements of the
Obama plan, including keeping the current system for taxing U.S.
corporations' foreign profits. Big multinational companies have
been lobbying for a tax holiday, known as repatriation, on
profits earned abroad, but this is missing from the proposal.
A senior administration official said repatriation might be
reconsidered as part of the give-and-take when negotiating
details with lawmakers in a transition to a new tax system.
Manufacturing is given special status in the plan, including
an expanded credit and making permanent a research credit.
Still, the president of the National Association of
Manufacturers, Jay Timmons, said that while it appreciates the
effort, many elements "completely miss the mark."