Friday, February 18, 2011

Treasury Working to Build Consensus Prior to Offering Tax Reform Plan

By Heather M. Rothman

The administration is working to build consensus on corporate tax reform with the goal of laying out a plan that would maximize the ability of Congress to actually pass something, Treasury Secretary Timothy Geithner said Feb. 16 at a Senate Finance Committee hearing.

Geithner faced criticism from members of the committee for the exclusion of a comprehensive tax reform plan from President Obama's fiscal year 2012 budget proposal.

“I believe the choice you made in the budget significantly undercuts the opportunity for meaningful tax reform on both the corporate and individual side,” said Sen. Mike Crapo (R-Idaho). “I think the president needs to get engaged and get out and lead on this issue.”

Geithner agreed that strong executive leadership is key and said ultimately a high-ranking administration official would need to lay out a set of proposals.

“I suspect that we're going to get to that point sooner on corporate than on individual, but we'll meet that challenge,” Geithner said. “We're trying to figure out how to build consensus now before we take that next step so that we maximize the chance that we get it done.”

At the White House, Press Secretary Jay Carney said he did not have a timetable for laying out a corporate tax reform proposal, but reiterated Obama's desire to lower the corporate tax rate in a revenue-neutral way.

Corporate Reform Can Move Before Individual

A chief complaint among Senate tax writers was that Obama and the administration have spoken about lowering the corporate tax rate but have not addressed modifying the individual marginal tax rates, which impact the more than 75 percent of small businesses who file as passthrough entities.

Sen. Ron Wyden (D-Ore.), who for many years has offered his own tax reform proposals, urged the administration to move corporate and individual reform simultaneously, citing economists who said doing one without the other could add more distortion to the system because of the interaction between the two sides of the tax code.

Congress, he said, must examine the current structure and see whether “it makes sense for us as a country to allow certain businesses to choose whether they're treated as corporations for tax purposes or not.”

Repatriation, Deferral Discussed

In response to a question from Finance Committee Chairman Max Baucus (D-Mont.), Geithner said the administration would only consider allowing businesses to repatriate overseas profits as part of an overhaul of the corporate side of the Internal Revenue Code.

The administration “will be happy to consider [repatriation] in the context of overall corporate reform,” Geithner said. “If we can do corporate reform right, we'll have a chance to help on that front. But we'll not support it outside the context of comprehensive reform.”

Baucus has dedicated the 112th Congress to thoroughly examining the code, including whether it would be beneficial to move from a worldwide system of taxation to a territorial system. Noting that deferral—the practice where U.S. companies defer paying taxes on income earned by their foreign subsidiaries until the income is imported back to the United States—is currently the biggest tax preference, Baucus said it would grow “on the surface” if the United States moved to a territorial system.

The complete text of this article can be found in the BNA Daily Tax Report, February 17, 2011. For comprehensive coverage of taxation, pension, budget, and accounting issues, sign up for a free trial or subscribe to the BNA Daily Tax Report today.

© 2011, The Bureau of National Affairs, Inc.

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