The U.S. Treasury Department released details of President Barack Obama’s corporate tax reform plan Wednesday, which calls for lowering the corporate tax rate from 35 to 28 percent, among other provisions.
“By getting rid of special preferences for special types of activity and specific industries, we can reduce distortions that hurt productivity and economic growth, permitting us to lower corporate tax rates in a fiscally responsible way,” said Treasury Secretary Timothy Geithner Wednesday.
The U.S. corporate tax rate is the second highest in the world, behind Japan, and the Obama administration is looking to make the business climate in the U.S. more attractive with the lower rate.
Additionally the president’s corporate tax reform plan calls for lowering the effective tax rate for manufacturers to 25 percent.
The announcement of the plan to lower the corporate tax rate comes as reports of the U.S. economy improving continue to surface, with an improved unemployment rate and over 240,000 jobs added in the private sector in January.
In an effort to promote domestic investment, the new plan also calls for implementing a new minimum tax on foreign earnings of American businesses. This provision is related to the president’s effort to keep more American businesses from outsourcing jobs to other countries where it is often much cheaper to operate.
Mr. Obama’s corporate tax reform plan also comes during an election year, where nearly all of the remaining Republican presidential candidates have introduced tax code reform plans that also call for lowering the corporate tax rate in the U.S.
Former Massachusetts Governor Mitt Romney calls for lowering the rate from 35 to 25 percent, former House Speaker Newt Gingrich wants to lower the rate to 12.5 percent, and former Pennsylvania Senator Rick Santorum wants to lower the rate to 17.5 percent.
“We are going to propose a broad reform that will lower rates, broaden the base and eliminate and wipe out a very substantial fraction, dozens and dozens and dozens of special tax preferences for businesses,” said Mr. Geithner Wednesday. “We’re doing that because we think there’s a compelling economic case for doing that.”
Both chambers of Congress will have to approve the president’s plan, which will be difficult considering the widespread opposition from congressional Republicans to President Obama’s policies in recent months.
The president is expected to give a speech about his corporate tax rate reform proposal on Wednesday. The administration is hoping that the reforms are able to contribute towards lowering the federal deficit by creating more business activity and thus more tax revenue.
