WASHINGTON — President Obama rolled out a corporate tax overhaul plan Wednesday that lowers rates but also eliminates loopholes and subsidies cherished by the business world. A long-shot for action in an election year, the plan nevertheless stamps Obama’s imprint on one of the most high-profile issues of the presidential campaign.
The president’s plan to lower the corporate tax rate to 28 percent came on the same day Republican presidential contender Mitt Romney called for a 20 percent across-the-board cut in personal income tax rates, underscoring the potency of taxes as a political issue, especially during a modest economic recovery.
Obama has not laid out a plan for overhauling personal income taxes. But he has called for Bush era tax cuts to end on individuals making more than $200,000, thus increasing their taxes, and for a 30 percent minimum tax on taxpayers who make $1 million or more.
Obama decried the current corporate tax system as outdated, unfair and inefficient. “It’s not right and it needs to change,” he said in a statement.
The president would reduce the current 35 percent corporate tax, which is the highest in the world after Japan but which many corporations avoid by taking advantage of deductions, credits and exemptions. Under his plan, manufacturers would receive incentives so that they would pay an even lower effective tax rate of 25 percent.
His plan would eliminate corporate tax benefits like oil and gas industry subsidies and special breaks for the purchase of private jets — two provisions that Obama has long targeted — and do away with certain corporate tax shelters.
In addition, Obama also would impose a minimum tax on foreign earnings, a move opposed by multinational corporations and perhaps the most contentious provision in the president’s plan.
Romney has also called for a 25 percent corporate tax rate, in line with what some congressional Republicans want. Campaigning in Arizona, the former Massachusetts governor said that if elected president he would propose lowering the top personal income tax rate to 28 percent from the current 35.
In 2010, corporate income taxes made up just 12 percent of all federal tax receipts, down from 24 percent in 1960, according to the IRS.
Reducing the corporate tax rate to 28 percent would reduce tax revenues by about $700 billion over the next decade, according to an estimate prepared in October by the Joint Committee on Taxation, the official scorekeeper for Congress.
That means lawmakers would have to find about $70 billion a year in tax increases to keep the package from adding to the budget deficit, hardly an easy task.
Treasury Secretary Timothy Geithner, who presented Obama’s plan, acknowledged that the debate “will be politically contentious.”
“Some will say these proposals are too tough on business, and others will say that they’re not tough enough,” he said.
Indeed, several liberal-leaning groups criticized Obama’s plan for being “revenue neutral” and not generating more tax money to pay for government programs. “We can and should collect more tax revenue from corporations,” said Bob McIntyre, the director of Citizens for Tax Justice.
But the business groups objected to Obama’s plan to impose a minimum tax on foreign earnings, insisting instead that the administration embrace a “territorial” system of taxation.
The United States taxes U.S.-based multinational corporations on foreign profits, once that money is returned to the United States. In a territorial system, the U.S. would only tax profits made in the U.S. By taxing the foreign profits of U.S.-based multinationals, the U.S. has a worldwide system of taxation.
Those foreign profits are not taxed unless they are brought to the United States. And, in many cases, they are simply reinvested overseas, so they are never subjected to U.S. taxes. Administration officials said that under Obama’s plan, multinational corporations would continue to receive a tax credit for any taxes they pay overseas.
Among critics of his plan were the U.S. Chamber of Commerce and the high-tech industry, a group Obama has been eager to court.
“The framework would punish successful companies and push investments out of the United States,” said Dean Garfield, president and CEO of the Information Technology Industry Council, which represents firms such as Cisco Systems Inc., Google, Apple Inc., and Intel Corp.