A White House proposal to pair a corporate tax overhaul with new
domestic spending elevated the contentious issue of tax policy to the
fore in budget negotiations and appeared to give a shot of momentum to
changes long supported by some of the largest U.S. companies.
The proposal, laid out Tuesday in a speech by President Barack
Obama, raised the prospect that corporate taxation would now be high on
the list of items under discussion as the White House and congressional
Republicans negotiate federal spending levels for next year and the
terms for raising the debt ceiling, both of which must be resolved
within months.
Mr. Obama, in his speech, offered to work with Congress to
overhaul business taxes in exchange for a guarantee that a resulting,
one-time revenue gain be used to underwrite new spending on roads and
infrastructure and other programs that the president said would boost
the economy.
The president said he supports the move "as long as we use the
money from transitioning to a simpler tax system for a significant
investment in creating middle-class jobs," Mr. Obama said in
Chattanooga, Tenn. "That's the deal."
He offered few details of the tax-code changes he would seek
or the amount of revenue he would demand. Nonetheless, several
Republican senators engaged in talks on fiscal matters with the White
House said that while they were wary of Mr. Obama's call for new
domestic spending, his proposal could ease the path to a budget deal.
"We obviously need to make our corporate tax system far more
competitive," said Sen. Ron Johnson (R., Wis.), a participant in the
White House talks. He said he generally supported infrastructure
spending, so long as it was paid for by "cutting spending in other,
lower-priority areas."
Some Senate Republicans, however, rejected the plan outright,
as did Republicans in the House, who said that Mr. Obama was offering
nothing in the way of compromise. Most Republicans in Congress say that
any new revenues from changing the tax code must be devoted to lowering
tax rates.
"This proposal allows President Obama to support President
Obama's position on taxes and President Obama's position on spending,
while leaving small businesses and American families behind," a
spokesman for House Speaker John Boehner of Ohio said.
The White House plan focused largely on the corporate tax
code, but officials said the proposal included changes that would
benefit companies that pay taxes through the tax code for individuals.
Still, some Republicans and business groups said they worried that
corporations would see their tax rates cut, but businesses that pay the
individual tax rate wouldn't.
Groups representing small businesses said they opposed the
idea because benefits would be skewed toward corporations. "This really
doesn't move the ball forward," said Chris Whitcomb, tax counsel for the
National Federation of Independent Business.
Some groups representing large businesses praised the
president. The RATE Coalition, made up of companies that want to cut the
U.S. corporate rate, welcomed Mr. Obama's move as "a solid step in the
right direction and another sign of growing momentum behind meaningful
reform."
The plan could give a shot in the arm to negotiations among
lawmakers on Congress's tax-writing panels on overhauling the tax code.
The two leaders of those panels, Rep. Dave Camp (R., Mich.) and Sen. Max
Baucus (D., Mont.), issued an unusual joint statement on Tuesday,
saying they welcomed "the president's recognition that our broken,
outdated tax code is making it harder for U.S. companies to compete and
American families to get ahead."
But their statement underscored their continued support for a
comprehensive approach, including individuals as well as businesses.
White House aides said the president's plan would deliver a
long-sought goal of each party-- a tax overhaul for Republicans, and new
spending on Democratic-backed programs intended to create jobs. They
said the size of the new investment package would be a matter of
negotiation with Republicans.
Administration aides said the White House proposal relies on
the reality that a tax overhaul likely would generate higher revenues on
a one-time basis from several areas of the tax code.
One is the international area. Currently, U.S. businesses can
largely avoid federal taxation on their overseas earnings, as long as
they don't bring the money back to the U.S. As a result, U.S. companies
have built up large stockpiles of cash offshore.
A number of proposals in Congress would change that, requiring
businesses to pay a special, low tax rate on the profits that are held
offshore, thereby encouraging the companies to bring more of them back
home. Most often, those proposals are part of a broader plan to
eventually end the U.S. tax on overseas profits. That would put the U.S.
in line with most other developed countries, which seek to tax only
domestic profits. The administration stopped short of endorsing that
goal on Tuesday.
Some companies have backed policy changes that could draw
money to the U.S. that they now hold overseas. "If there's an incentive
for that cash to be put to work in exchange for holidays on taxation, I
think a lot of American companies, including ours, would see that as a
very positive step and would be incentivized to put that capital to
work," said Martin Franklin, executive chairman of Jarden Corp., a
global consumer-goods maker whose products include Coleman coolers and
camping equipment, Rawlings baseball gear and Marmot sportswear.
Another possible change in corporate taxes would raise revenue
by slowing the rate at which businesses can depreciate plant and
equipment. Businesses likely would still get the full depreciation, just
over a longer period of time. Still another possibility is doing away
with a system of accounting for business inventory, known as "last in,
first out," that benefits businesses facing rising prices.
The White House plan wouldn't push to lower the individual
income-tax rates paid by thousands of businesses, but it would create
some tax benefits for these entities. As an example, administration
aides said, Mr. Obama has proposed allowing businesses, including small
businesses, to expense up to $1 million in investments, a change that
would provide certainty in an area where limits have changed frequently.
In addition, the broad design of the plan is aimed at
eliminating the high tax rate that discourages many small businesses
from structuring themselves as corporations in the first place.
While many Republicans criticized the proposal, a number of
senators stood out for their more ginger responses. Sen. Lindsey Graham
(R., S.C.), one of eight GOP senators meeting with the administration,
said he agreed with Mr. Obama that infrastructure spending should be
increased. But those funds should come out of a broader deal, he said.
In such a compromise, Republicans might agree to raise some revenue by
overhauling and simplifying the tax code, if the White House agreed to
entitlement changes that would save somewhere in the ballpark of $10
trillion over 30 years, he said.
"Really, the only way you're going to get this is doing entitlement reform and simplifying the tax code," Mr. Graham said.
By contrast, Sen. Orrin Hatch (R., Utah), the top Republican
on the Finance Committee, blasted the proposal as "unserious." He said
Mr. Obama previously had agreed to a business tax overhaul that did not
raise taxes.