Spirited debate ahead for corporate tax reform

As the tax reform debate on Capitol Hill begins, a gulf exists between U.S. companies and the Obama administration on how to overhaul corporate taxes.

The White House is reaching out to businesses to work with the administration on rewriting what all agree is an extremely complex tax code. U.S. Treasury Secretary Timothy Geithner met with more than a dozen top business leaders Friday.
 
A central disagreement centers on Geithner's insistence that any change be "revenue-neutral," according to The Wall Street Journal, citing people briefed on the discussions. Geithner contends that while the corporate tax rate of 35 percent may decrease, the revenue generated from the taxes should not go down. Corporate leaders aren't on board with that approach, the Journal said.
 
Frank Calderoni, chief financial officer of Cisco Systems Inc., told the newspaper that the revenue-neutral method doesn't consider the jump in economic activity that a lower corporate tax rate would create. "You can't just take it and go through a scoring exercise," he said.
 
Another disagreement is over the current system in which U.S. companies are taxed on profits earned outside the country. Proctor & Gamble President Robert McDonald said the system creates a "tilted playing field" compared with tax systems in other countries, hurting U.S. competitiveness.
 
The House Ways and Means Committee, its first hearing of the new Congress today, will focus on tax reform and will hear from McDonald; Nina Olson, the taxpayer advocate; Warren Hudak, whose Pennsylvania firm focuses on small-business accounting; Kevin Hassett of the American Enterprise Institute; and Martin Sullivan, a contributing editor to Tax Analysts, The Hill reported.
 
Rep. Dave Camp (R-MI), who chairs the Ways and Means Committee, told Reuters that today's hearing is the first step in a long debate about the tax code. "There is quite a bit of groundwork that needs to be done." The last major tax reform legislation in 1986 took several years to complete.
 
House Republicans have said they are not interested in pursuing corporate tax reform without also overhauling the individual tax code, The Washington Post reported. They say that millions of companies now pay taxes through the individual code.
 
Some say the current tax rate of 35 percent would have to go down to approximately 25 percent to gain widespread support among businesses, according to The Wall Street Journal.
 

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