WASHINGTON (Reuters) - Treasury Secretary Timothy Geithner said on Tuesday that the United States needs to cut the corporate tax rate substantially with a goal in the high 20 percent range, down from the current 35 percent
A day after the White House unveiled a budget that seeks to trim the country’s massive deficit, Geithner reiterated that the Obama administration and Congress had to work together to overhaul the tax code, starting with corporate taxes.
“We are very serious... in trying to build consensus now on a set of fundamental changes to the corporate tax system that would improve incentives for investment,” Geithner told a House panel.
“The average rate of our major trading partners now is in the high 20s and... to make it meaningful you want to get it down substantially toward that level,” he said.
The comments may mark the first time the Obama administration has publicly put a figure on a rate to work toward in cutting the statutory rate, among the highest in the industrialized world, analysts said.
The White House is in the midst of talks with corporations and others to gather ideas for tax reform, though many believe it will be a process that takes several years. Some were disappointed Obama’s budget did not take on the issue more directly.
Obama’s own fiscal deficit commission recommended cutting the top corporate rate to between 23 and 29 percent, while trimming business tax breaks.
The president did propose squashing some of these breaks in his 2012 budget, but the ideas have failed to garner support in Congress for several years.
A big stumbling block is that Obama wants to overhaul corporate taxes without adding to the deficit, expected to top $1.5 trillion this year. That will create inevitable winners and losers in the business community, dragging out the process.
At the hearing to examine the administration’s $3.729 trillion budget proposal for fiscal 2012, Geithner said the United States needs to shore up its massive pension program without slashing Social Security benefits or subjecting them to the “whims” of the stock market.
Geithner warned Republicans against cutting spending too quickly, calling for gradual deficit reduction to avoid endangering the economic recovery.
“Cutting services and programs too much, too soon would jeopardize the recovery and destroy tens of thousands of jobs,” Geithner told the U.S. House of Representatives Ways and Means Committee, which acts as Congress’ tax-writing panel.
Republicans, who hold a majority in the House and are pressing for deeper spending cuts, said the budget would raise taxes on small businesses and other companies, stifling hiring when the jobless rate remains uncomfortably high.
“How in heaven’s name does the White House believe it will gin up the economy, which is very sluggish, by taxing the manufacturers and job creators most likely to get us out of these tough times?” said Republican Representative Kevin Brady.
Lawmakers also pressed Geithner for more specifics on how the White House planned to reduce the cost of Social Security and Medicare, the two biggest sources of budgetary strain.
The Obama administration will work with Congress to consider ideas to strengthen Social Security — the pension program for the elderly and disabled, Geithner said.
“However, we will reject plans that slash benefits; that fail to protect current retirees, people with disabilities and the most vulnerable; or that subject Americans’ retirement savings to the whims of the stock market,” Geithner said.
Geithner added, however, that the United States cannot pretend that budget problems are merely the result of the financial crisis, and said restoring fiscal responsibility will require some “real sacrifice that affects all Americans.”
He said he believes that the Obama administration and Congress can find room for compromise, as they did in December in a tax-cut extension deal. The tax legislation was passed by Congress before Republicans took over the House in January and strengthened their minority in the Senate.
Additional reporting by David Lawder, Dave Clarke, Lesley Wroughton and Pedro da Costa; Writing by Emily Kaiser and Rachelle Younglai; Editing by James Dalgleish