Friday, January 7, 2011

Momentum Builds for Corporate-Tax Overhaul

The White House and congressional Republicans are moving from different directions toward a consensus that the U.S. corporate tax code needs a fundamental overhaul, a goal high on corporate leaders' agenda.

Specific proposals for retooling the complex corporate-tax system aren't on the table and the debate over the issue is sure to be lengthy and difficult. But President Barack Obama and Republican congressional leaders are separately sounding the same broad theme that corporate tax rates should be lower.

"Tax reform could be a significant boost to our competitiveness," Rep. Eric Cantor (R., Va.), the new House majority leader, said this week. "I'm hopeful and expect the president to put some action behind his statements."

The movement on the corporate-tax issue comes as Mr. Obama and his aides are pushing a broad effort to repair relations with U.S. business leaders. Since Democrats lost control of the House in November, Mr. Obama has met with chief executives to solicit their ideas on job growth, negotiated a free-trade pact with South Korea widely supported by business, and begun searching for figures with strong ties to the business world to take top White House jobs.

The White House is also advancing a rapprochement with the U.S. Chamber of Commerce, the capital's biggest, richest business lobby, which has clashed repeatedly with the administration on a range of issues. On Wednesday, the White House said Mr. Obama would address members of the chamber for the first time at the group's Washington headquarters on Feb. 7.

Mr. Obama will use his visit to the chamber's headquarters to "discuss his commitment to growing the economy and making America more competitive, and the importance of working together to create jobs," said White House spokeswoman Jennifer Psaki.

"We look forward to hosting the president next month to discuss jobs and the economy," said Tom Collamore, the chamber's senior vice president of communications. "We're committed to working together to put Americans back to work."

Mr. Obama has expressed a willingness in recent interviews to have "a conversation" this year about lowering corporate-tax rates, while reducing the number of tax breaks. Administration officials caution that he hasn't decided whether to push for action this year.

Executives on Mr. Obama's Export Council last month said the U.S. corporate-tax code, with its top rate of 35%, puts U.S. companies at a disadvantage against rivals from countries where tax rates are lower. To be sure, many companies don't pay that top rate. The panel recommends a federal rate of 20%.

A blue-ribbon fiscal commission appointed by Mr. Obama also recommended sharply lower corporate tax rates, along with elimination of targeted business tax breaks.

Leading Republican lawmakers this week said they would push hard for changes in the months ahead, as they seek to boost the economy and job creation. Supporters say lowering corporate rates is particularly important to stimulating more investment within the U.S. and expanding exports.

Obstacles to a deal to revamp corporate taxes include the likelihood corporations will fight to keep tax breaks that work to their benefit, and White House concerns that any tax overhaul not result in less revenue.

A revamping of corporate taxes also could be hitched to an overhaul of individual taxes, complicating the deal-making and potentially dragging the issue into the 2012 election cycle.

Republicans, however, are unlikely to support a plan that substantially raises the government's total tax take. Rep. Pat Tiberi (R., Ohio), the incoming chairman of a House Ways and Means panel on federal revenue, says it is "unrealistic" to expect businesses to give up enough of their tax breaks to hold revenues flat.

For their part, many congressional Democrats agree on the need for an overhaul. But given the political complexities, it will be "very difficult" to achieve this year, said Rep. Richard Neal (D., Mass.), Mr. Tiberi's predecessor. "I'm of a mind to engage the conversation…and then the presidential candidates need to take it up in earnest the following year," he said.

Key congressional committees are digging into the issue.

House Ways and Means Committee Chairman Dave Camp (R., Mich.), is expected to hold early hearings on a tax overhaul. The Senate Finance Committee, led by Sen. Max Baucus (D., Mont.), has also started holding hearings on broad-based tax changes.

As a short-term alternative to an overhaul, some lawmakers and business advocates are weighing a temporary change in tax rules to allow U.S. multinationals to bring home more of their overseas profits that are parked offshore, avoiding U.S. tax through special breaks.

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