WASHINGTON The Obama administration's corporate tax reform plan will end "dozens and dozens" of tax breaks, U.S. Treasury Secretary Timothy Geithner said on Tuesday as he defended the White House's election-year call for higher taxes on the wealthy.
Within days, the administration is set to unveil a blueprint for revamping the corporate tax system aimed at leveling the playing field for all companies, which pay wildly differing levels of taxes, while lowering the top corporate tax rate.
Companies are clamoring for a cut in the top 35 percent corporate tax rate but disagree about how to how eliminate special tax preferences that benefit selected industries.
Geithner spoke before the Senate Finance Committee a day after President Barack Obama unveiled a $3.8 trillion budget-and-tax proposal that called for aggressive government spending to boost the economy and higher taxes on the rich.
"We think they can handle it. We think they can afford it," Geithner said.
The budget proposal is seen as a campaign document, with few elements expected to win approval this year in a divided U.S. Congress as elections approach in November.
Republicans criticized Obama's budget, saying it chooses winners and losers and moves away from tax reform.
For example, Obama wants to end a manufacturing tax break for oil and gas companies, but expand it for high-tech companies. "Obviously not everyone is going to be playing by the same set of rules," Republican Senator Jon Kyl of Arizona said.
Geithner said it was a "fair question."
He said the Obama plan would "wipe out a very substantial, dozens and dozens of special tax preferences," in the corporate code, but keep a "very limited" number targeting incentives for "creating and building stuff in the United States."
Senators from both parties said Obama needs to use the bully pulpit to push major changes to the tax code.
The last time major rewrite of the U.S. tax code came in 1986 under the leadership of Republican President Ronald Reagan.
"The key in 1986 was of course the presidential bully pulpit and that the executive branch every single time out talked about how you had to fit the pieces together," Democratic Senator Ron Wyden said.
Obama said earlier he was "hopeful" of a deal on extending a 2 percentage point cut in the payroll tax paid by workers, which will expire at the end of the month without a deal between sparring lawmakers.
The payroll tax extension is the first among many deadlines approaching in coming months that could hamper the fragile economic recovery.
At the end of the year, individual tax cuts enacted under President George W. Bush are set to expire. In addition, $1.2 trillion in automatic budget cuts across all government programs are set to kick in as part of last summer's deal to raise the debt ceiling.
"A perfect fiscal storm is waiting at the end of the year," Senator Max Baucus, Democratic chairman of the Senate Finance Committee said.
Geithner agreed that the combination of the deficit reduction measures and higher taxes would hurt the economy.
But he said the administration is proposing to extend the bulk of the tax cuts so that only the wealthiest would be impacted. "The impact of that tax reform would be very, very modest," he said.
Geithner rejected Republican suggestions that the administration should make drastic cuts to government spending even though the U.S. deficit has soared to $1.3 trillion and the federal debt has topped $15 trillion.
"That would damage economic growth," Geithner said.
(Reporting By Kim Dixon and; Rachelle Younglai; Editing by Kevin Drawbaugh and Cynthia Osterman)