* 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
WASHINGTON, Feb 22 President Barack Obama
made an opening offer in what could be a long negotiation with
corporate America on Wednesday, putting forward his first clear
plan to cut the corporate tax rate.
Though it has little chance of becoming law in an election
year with Congress deeply divided on fiscal issues, Obama's plan
aligns him roughly with the Republican presidential challengers
and could minimize the corporate tax rate as a political 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.
Republican hopeful Mitt Romney on Wednesday unveiled
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, among other steps.
Though thanks to tax breaks many companies pay nowhere near
the top U.S. corporate rate of 35 percent, the statutory top
U.S. rate makes it the world's second-highest after Japan's.
In return for lowering the tax rate on businesses, Obama's
plan calls for broadening the corporate tax base by ending a
number of tax breaks, some spelled out earlier in his budgets.
The 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.
CORPORATIONS WANT MORE
Obama's plan was immediately criticized as inadequate by
some business groups, while others said the plan was a step in
the right direction, but short on details.
"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.
In a move that critics said was made partly to counter the
unveiling of Romney's plan, Obama's proposal was rolled out at a
briefing by Treasury Secretary Timothy Geithner.
In a statement released later, Obama said, "Our current
corporate tax system is outdated, unfair, and inefficient."
"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 is unnecessarily complicated and forces America's small
businesses to spend countless hours and dollars filing their
taxes. It's not right, and it needs to change."
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.
Complicating any tax reform effort are the approaching
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 release of the Obama plan a "cynical ploy" because
of the release of Romney's plan. The Obama plan "has virtually
no chance of winning enactment this year," Valliere said.
ROMNEY INCLUDES STANDARD GOP PROPOSALS
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.
Romney's 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 proposed some limits on tax
deductions. He said the popular deductions for home mortgage
interest and charitable contributions would continue for most
Americans, but "for high-income folks, we're going to cut back
He said he would maintain the current 15 percent rate on
capital gains and proposed that no Americans with annual income
below $200,000 pay taxes on capital gains.
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.
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 Friday, Congress approved extending a payroll tax cut
through the end of 2012, when its expiration will coincide with
several other fiscal earthquakes: the expirations of individual
tax cuts enacted under President George W. Bush, and $1.2
trillion in automatic budget cuts across all government programs
imposed as part of last year's deal to raise the debt ceiling.
The confluence of these events could unleash new momentum
for comprehensive overhaul of the tax system, but for now
proposals along these lines will largely amount to political
messaging, analysts said.
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.
EFFECTIVE CORPORATE RATE VARY WILDLY
U.S.-based companies now pay wildly different effective tax
rates, with many far below and some well above the 35 percent
statutory rate. For example, big multinational companies like
General Electric and Boeing are able to shift intellectual
property abroad and enjoy low effective tax rates.
Retail companies and healthcare services are among those
enjoying fewer tax breaks, so they could benefit from the plan.
Business groups are likely to oppose many elements of the
Obama plan, including keeping the current "worldwide" system
taxation that taxes profits earned abroad.
Big multinational companies have been lobbying for a tax
holiday, known as repatriation, on profits earned abroad, which
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."