The Obama administration has unveiled a framework for corporate tax reform that lowers rates while eliminating loopholes, but the proposal has already met with sharp criticism from Republicans and corporations for proposing a rate higher than the developed country average.
The administration’s five-point plan lowers the corporate tax rate from 35% to 28%, while eliminating tax expenditures, special provisions in the tax code that favor certain corporate sectors but which reduce revenue to the government. At the same time, the administration proposes to introduce incentives for U.S. manufacturers that cap the effective rate of that sector to no more than 25%.
Additionally, the plan would impose a minimum tax on foreign earnings, which the administration says will encourage U.S. companies to invest in the domestic economy. The administration says its proposal would also reduce the tax burden on small businesses. Finally, the plan is meant to be cost neutral, meaning that the closing of tax expenditures are expected to make up for revenues lost through a lower overall rate.
Treasury Secretary Tim Geithner, in prepared remarks introducing the plan, said: “We want to restore a system in which American businesses succeed or fail based on the products they make and the services they provide, not on the creativity of their tax engineers or the lobbyists they hire.”
White House Press Secretary Jay Carney, speaking to reporters on Wednesday afternoon called on Congress to take action “in accordance with the president’s principles.”
But Senate Finance Committee ranking member Orrin Hatch (R-Utah) poured cold water on that possibility, calling the president’s plan “profoundly disappointing in its lack of detail” and taking further aim at elements of the plan that were specified.
“Last Fall, Republicans on the Senate Finance Committee proposed reducing our corporate tax rate to 25 percent and moving to a more efficient territorial tax system,” Hatch stated in a news release. “Instead, the Administration today only reduces the corporate rate to 28 percent and retains the antiquated worldwide system of corporate taxation. Instead of simply reducing and eliminating tax preferences, the Administration proposes more.”
Hatch also criticized a “so-called reform that includes a back door tax increase” and added that tax reform should address individual taxpayers as well as corporations.