The Obama administration will tonight propose cutting the top tax rate for corporations to 28 per cent, and pay for it by eliminating dozens of tax loopholes companies now use to lower their rates.
Chances of a deeply divided Congress revamping a tax system regarded as convoluted across the political spectrum seems remote in an election year, but the announcement is certain to fuel debate in the run-up to November's elections.
The plan, over a year in the making, is US president Barack Obama's first official foray into overhauling the tax code, which most experts believe badly needs a revamp after years of being loaded up with special provisions.
The centrepiece is a cut in the top corporate rate - now at 35 per cent, among the highest in the industrialized world. That will appeal to businesses, which gripe that the current US rate puts them at a competitive disadvantage.
Controversy will erupt when officials lay out which "loopholes" they want to cut.
The proposal makes a special carve-out for manufacturing - cutting that tax rate to 25 per cent - and proposes a minimum tax on profits earned in low tax countries. With deficits running about $1 trillion, a senior administration official said the plan will not "add a dime to the deficit".
That means any tax revamp will create winners, companies whose tax rates go down, and losers who now benefit from the very loopholes Mr Obama wants to trim.
This will set up a fierce fight among lobbyists defending their tax breaks, when a proposal finally makes it to Congress for debate, which seems unlikely before November at the earliest.
Administration officials told reporters yesterday that he Treasury Department would put out a corporate tax reform plan today. The Obama plan will follow such principles as "fairness" that the president set out in his State of the Union address to Congress last month, the officials said.
After the presidential and congressional contests are decided in November, a number of major tax and budget issues will converge on Washington and new momentum for comprehensive tax reform may follow.
Treasury Secretary Timothy Geithner told a Senate committee last week that "dozens and dozens" of tax loopholes were being targeted for closure, but that some tax incentives would be kept for "creating and building stuff in the United States."
The last major rewrite of the tax code came in 1986 under Republican president Ronald Reagan, who raised corporate taxes. Talk of tax reform has dominated the presidential campaign.
Republican candidate Mitt Romney ahs called for a flatter, fairer and simpler tax code. He is scheduled to make a major economic speech on Friday in Detroit. Details of his tax plan may emerge before then.
Reuters