Congressional reaction to President Obama’s corporate tax framework split along party lines Wednesday, showing how hard any rewrite of the tax code will be, despite near-universal recognition that the current tax system must be changed.
Republican tax writers said the president’s proposed 28-percent tax rate was not low enough, and they roundly rejected his call for a minimum tax on overseas corporate profits. Democratic tax writers praised Mr. Obama’s proposal to favor domestic manufacturing. And both sides indicated that any action was not likely in an election year.
“I’d hoped the White House would recognize the severity of the problem with a real plan and real leadership,” said Senator Orrin Hatch of Utah, a Republican who hopes to become chairman of the Senate Finance Committee if he can survive a challenge from the right during his re-election campaign and Republicans can win control of the Senate in November. “But, after months of promises, we instead got a set of bullet points designed more for the campaign trail than an actual blueprint for fixing our tax code,”
At first blush, President Obama’s “framework” for tax reform would appear to be an olive branch to Republicans, who are united in their condemnation of a corporate tax rate that is among the highest in the developed world. Like the Republicans, the president wants to lower the 35-percent rate, and in keeping with Republican tax policy, he also wants to expand the tax base by closing loopholes.
But the White House and Republican tax writers are taking opposite tacks on taxing corporate profits from overseas operations. Currently, United States corporate operations abroad are subject to the host country’s taxation rate. After those taxes are deducted, remaining profits may be subject to United States taxation, but only if they are brought back to the country.
Republicans want to move to a so-called territorial tax system, in which operations in the United States would be subject to the corporate income tax, but operations abroad would be subject only to the taxes of the host country. Mr. Obama wants to set a minimum tax for overseas profits, whether they are brought home or invested abroad.
For Democrats in a political year, that may be crucial.
“The administration has put the focus of corporate tax reform where it needs to be: on promoting investment, job creation and especially manufacturing in the United States, not overseas,” said Representative Sander M. Levin of Michigan, the ranking Democrat on the House Ways and Means Committee.
For Republicans, it may be a deal-breaker.
“Chief among” the policy differences “is the administration’s apparent decision to expand a system that double taxes American employers when they try to compete with foreign corporations,” said Representative Dave Camp of Michigan, chairman of the House Ways and Means Committee, referring to the overseas minimum tax.
Mr. Camp and Mr. Hatch also say an overhaul of the corporate tax code must move in tandem with legislation to simplify and lower the rates of the individual tax code, since many small businesses pay their taxes through the individual tax system.
That does not appear to be the route Democrats want to take.
“This business tax reform framework is the right path for America,” said Representative Chris Van Hollen of Maryland, the ranking Democrat on the House Budget Committee, “and I look forward to working with President Obama and colleagues on both sides of the aisle to enact comprehensive business tax reform at the earliest possible opportunity.”
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