WASHINGTON (Reuters) - Democrats and Republicans should begin a conversation next year about a broad overhaul of the tax code that would involve lowering rates while eliminating tax breaks for favored groups, President Barack Obama said in an interview broadcast on Friday.
Obama said any effort to streamline the multilayered U.S. tax code would be challenging but if successful, it could set the stage for more robust growth.
Tax reform is an idea backed by many in the business community who say the current corporate tax structure puts American firms at a competitive disadvantage.
“Typically, the idea is, simplifying the system, hopefully lowering rates, broadening the base — that’s something that I think most economists think would help us propel economic growth,” Obama told National Public Radio in an interview. “But it’s a very complicated conversation.”
“So what I believe is, is that we’ve got to start that conversation next year. I think we can get some broad bipartisan agreement that it needs to be done. But it’s going to require a lot of hard work to actually make it happen,” he said.
The interview was taped on Thursday but aired on Friday morning.
A restructuring of the tax code to get rid of specialized deductions and other tax breaks was one of the recommendations backed by a majority on the panel Obama appointed on deficit reduction.
The panel said eliminating deductions could allow for lower overall rates and the raising of additional revenue to help curb the swollen budget deficit.
The New York Times reported on Friday that Obama had directed his economic team and Treasury Department analysts to study ideas for closing loopholes and eliminating deductions in corporate and personal income taxes.
The newspaper said the analysis of the corporate tax code was further along.
The White House emphasized that no decisions have been made on whether Obama will launch a major push on tax reform in the near future.
“The president has long said that reforming the tax system is a priority and the bipartisan fiscal commission recently made recommendations that he will consider as part of the budget process, but he is not considering specific policy proposals and no decisions have been made about whether this is a priority he will push for in the near future,” White House spokeswoman Jen Psaki said.
The last major reform of the U.S. tax code took place in 1986 under Republican President Ronald Reagan.
Obama made reference to that effort and cautioned that the reform “didn’t happen right away.”
“It required a lot of conversations among a lot of different parties,” Obama said.
But he said the loopholes and deductions tend to benefit the wealthy and “well connected” who can hire accountants to take advantage of special provisions in the tax code while “ordinary people end up getting squeezed.”
Obama also predicted in the NPR interview that the tax-cut package he hammered out with Republicans would be approved by the end of the year with few changes. “I’m confident that the framework is going to look like the one that we put forward,” he said.
Obama promised to offer a budget in February that outlines how the country can put “a serious dent in our debt and our deficit.” He praised Erskine Bowles and Alan Simpson, co-chairs of the deficit commission, for starting a discussion.
Obama said the process of tackling the deficit would be a matter of setting national priorities.
“I think it’s important to understand this doesn’t need to be Armageddon ... This is not a situation where we’ve got to slash and burn everything,” he said.
Reporting by Caren Bohan and Jeff Mason; Editing by Vicki Allen