WASHINGTON – Laying down an election-year marker in the debate over taxes, the Obama administration is proposing to cut the corporate tax rate from 35 percent to 28 percent, and to seek an even lower effective rate for manufacturers, a senior administration official says.
In turn, corporations would have to give up dozens of loopholes and subsidies that they now enjoy. Corporations with overseas operations would also face a minimum tax on their foreign earnings.
Treasury Secretary Timothy Geithner today was to detail aspects of President Barack Obama’s proposed overhaul of the corporate tax system, a plan Obama broadly outlined in his State of the Union speech last month.
Chances of accomplishing such change in the tax system are slim in a year dominated mostly with presidential and congressional elections. But for Obama, the proposal is part of a larger tax plan that is central to his re-election strategy.
The corporate tax plan dovetails with Obama’s call for raising taxes on millionaires and maintaining current rates on individuals making $200,000 or less.
The 35 percent nominal corporate tax rate is the highest in the world after Japan. But deductions, credits and exemptions allow many corporations to pay taxes at a much lower rate.
Under the administration’s proposal, the rate cuts, closed loopholes and minimum tax on overseas earning would result in no increase to the deficit.
That means that many businesses that slip through loopholes or enjoy subsidies and pay an effective tax rate that is substantially less than the 35 percent corporate tax could end up paying more under Obama’s plan. Others, however, would pay less while some would simply benefit from a more simplified system.
The official said the Obama plan aims to help U.S. businesses, especially manufacturers. Obama’s plan would lower the effective rate for manufacturers to 25 percent while emphasizing development of clean energy systems.