Co-chair of debt panel wants corporate tax reform

AP News
Posted: Sep 22, 2011 5:04 PM
Co-chair of debt panel wants corporate tax reform

The Republican co-chairman of the deficit-fighting "supercommittee" said Thursday he wants to tackle corporate tax reform, a theme the White House has promoted for months. But big differences remain, including on the sticky issue of whether changes should lead to higher overall taxes on businesses.

Limited by a tight deadline, there is also wide disagreement over whether Congress should overhaul corporate taxes without addressing taxes paid by individuals. Millions of business owners pay taxes on business profits on their individual returns.

Tax increases should be off the table, said Rep. Jeb Hensarling, R-Texas, co-chairman of the committee. But, he said, simplifying the corporate tax code by lowering the top rate and reducing tax breaks could help improve the economy, which would lead to more revenue.

"Most Americans agree that there is something fundamentally wrong with our tax code when a small business in east Texas pays 35 percent and a large Fortune 500 company pays little or nothing," Hensarling said at a committee hearing on tax reform. He said he hopes the committee can agree "that fundamental tax reform, even if limited to just American businesses, can result in both revenue from economic growth for the federal government and more jobs for the American people."

The top corporate income tax rate is 35 percent, among the highest in the world. However, many corporations pay a much lower rate because they are able to take advantage of exemptions, credits and deductions.

There is widespread support in both political parties to simplify the entire tax code _ for individuals and businesses _ by reducing exemptions, deductions and credits, and using the additional revenue to lower overall tax rates. But reaching agreement on the details will prove difficult because such an endeavor will create many winners and losers.

The Democratic co-chair, Washington state's Sen. Patty Murray, says spending cuts should be combined with tax increases to reduce the deficit, renewing a debate that Democrats and Republicans have been waging since Congress started to address deficit reduction this summer.

"Spending cuts alone are not going to put Americans back to work or put our budget back in balance," Murray said. "We have to address both spending and revenue."

President Barack Obama has repeatedly said he would like Congress to address corporate tax reform. On Monday, Obama said he's ready to work with the supercommittee to reform the entire tax code. However, he said it should be done in a way that raises revenue.

The deficit reduction package passed by Congress in August created the committee of six Democrats and six Republicans. It is charged with producing, by Thanksgiving, at least $1.2 trillion in deficit reduction over the next decade. If it fails, or if Congress refuses to adopt the committee's proposals, automatic spending cuts of $1.2 trillion would be enacted, starting in 2013.

Committee member Sen. Max Baucus, D-Mont., questioned whether the committee will have enough time to address such a complicated issue as tax reform.

"I'm for going down this road. I think we should lower our corporate rates very significantly," Baucus said. But, he added, "This is not an easy undertaking, corporate tax reform. It takes time."

Committee member Rep. Dave Camp, R-Mich., said reforming corporate taxes without addressing taxes for individuals would leave out millions of business owners who report business profits on their individual returns.

"Corporate reform alone would then leave out many employers, leave them out of the equation because of the way that business activity is organized in the United States," said Camp, who is chairman of the House Ways and Means Committee.

Some members have suggested the supercommittee could set up a framework for Congress to tackle tax reform in the coming months, perhaps establishing a deadline for the tax-writing committees to develop plans. The details of such a framework, however, are still murky.