WASHINGTON, Feb 13 (Reuters) - President Barack Obama’s choice to be the next U.S. Treasury secretary said on Wednesday that revamping the tax code is “at the very top” of his priorities, and he offered some olive branches to Republicans to get there.
Tax reform took center stage at the Senate Finance Committee’s confirmation hearing for Jack Lew, Obama’s nominee to replace Timothy Geithner. Lew told lawmakers that Obama is committed to a long-sought tax code overhaul and said that lowering all tax rates is possible if tough choices are made.
“It is possible. If we roll up our sleeves and are willing to do the hard work, we can both get our fiscal house in order and work on the rate structure,” Lew, who has served as Obama’s chief of staff and budget director, told the panel.
Republican Senator John Thune of South Dakota presented Lew with huge stacks of paper that were copies of the tax proposal offered by the Treasury Department under Republican President Ronald Reagan in 1986, intended to contrast with the slim pamphlets on a tax rewrite thus far offered by Obama.
Lew responded that the 1986 overhaul, in its final form, resembled neither the huge stack nor the thin pamphlets after it was hashed out by lawmakers over many months in congressional hearings in conjunction with the Treasury Debarment.
Still, Thune said the White House must play a larger role.
“This is not going to get done unless there is leadership out of the White House,” he said. “There are lots of constituency groups out there that are very committed to the current tax code.”
Obama and his fellow Democrats, along with Republicans, say they back a revamp of the tax code, but the odds of achieving that are clouded by constant fiscal fights and a wide divide over whether new revenue is needed.
“In clearing out the tax code and broadening the base, there is room to raise the revenue that we need,” Lew said.
Many experts define a reform of the tax code as requiring broadening the base and lowering tax rates.
“Broadening the base” means increasing the amount of income subject to taxation, which means paring tax breaks, of which the biggest are those for investment earnings, mortgage interest, charity and others prized by industries and many individuals.
Republicans pressed Lew on lowering the corporate tax rate, now at 35 percent and the highest among developed countries. Obama has backed trimming that top rate to 28 percent, while Lew said it would be challenging to get it down to the Republicans’ goal of 25 percent.
Lew was also asked about moving to a “territorial” tax system favored by big business and Republicans, where most of corporate income earned offshore is exempt from U.S. taxes.
Under the current worldwide tax system, most income, wherever it is earned, is subject to U.S. tax, though a plethora of laws allow companies to defer or avoid taxes on these profits.
Lew reiterated Obama’s call for a minimum tax on foreign profits, which the president revived on Tuesday in his State of the Union speech. But Lew said “there is room to work together” when asked if he is open to a more territorial-like system.