By Kevin Drawbaugh and Patrick Temple-West
WASHINGTON (Reuters) - Tax rates would be slashed and U.S. corporations would get big tax breaks on their offshore profits under a plan offered on Wednesday by a senior congressional Republican.
In a move that shifts the tax reform and deficit debate, Dave Camp, chairman of the tax-writing House Ways and Means Committee, called for cutting the top tax rates for individuals and corporations to 25 percent from 35 percent.
He proposed adopting a "territorial system" that would exempt 95 percent of corporations' overseas profits from the U.S. corporate income tax. In addition, he urged a transitional tax on corporate profits currently stashed offshore of 5.25 percent, "whether or not such earnings are repatriated."
Camp's plan taps into proposals that likely could pass the Republican-controlled House of Representatives. Democrats would put up a fight over them in the House and Senate, but some of the proposals already have bipartisan support.
A summary on the committee's website said the plan "would lower top tax rates for both individuals and employers to 25 percent" and "transition the United States ... to a territorial system."
Camp said he wants to offset the tax cuts that he proposes with unspecified "base-broadening provisions." That would likely mean closing tax loopholes and ending certain deductions and credits. Camp provided no details on how to do that.
"For individuals, this plan would almost certainly result in another massive tax cut for many of the very wealthy," said Representative Sander Levin, the top Ways & Means Democrat.
Levin said the Camp plan would likely shift more of the tax burden onto working families by ending middle class tax benefits such as the mortgage interest deduction.
Camp's proposals come as the pace of negotiations within Congress' "super committee" on deficit reduction accelerates toward a November 23 deadline. By that date, the panel must find at least $1.2 trillion in budget savings over 10 years.
CAMP ISSUES CHALLENGE
Camp is a member of the panel, but he made his tax reform proposals on his own, in his role as chairman, throwing down a challenge to Democrats hours after their super committee members released a deficit-cutting plan.
Democrats on Tuesday unveiled a plan proposing up to $3 trillion in measures to slash the budget deficit, including revenue increases and cuts to the Medicare health program.
With budget deficits topping $1 trillion annually, ratings agencies are watching closely for signs that Congress and the Obama administration can put the U.S. fiscal house in order.
Corporations issued a barrage of statements praising the Camp plan only minutes after it was released.
"We are pleased that Chairman Camp included foreign earnings repatriation in his tax reform proposal," said Karen Olick, campaign manager for WIN America, a lobbying group backed by large multinationals including Apple Inc, Cisco Systems Inc, Google Inc, Microsoft Corp, Oracle Corp and Pfizer Inc.
The Business Roundtable, a lobbying group for chief executives of major corporations, also praised Camp's plan.
Taking a critical view, Democratic Representative Lloyd Doggett said, "While Halloween approaches, no matter how you dress up this proposal, a territorial tax system is about shipping more jobs and profits to another country's territory.
"It encourages U.S. multinational corporations to expand abroad rather than at home."
FOREIGN PROFITS IN FOCUS
Under current law, U.S. corporations must pay tax -- most at the top rate of 35 percent -- on profits earned at home or abroad, minus credits for taxes paid to foreign governments. For overseas profits, the U.S. corporate income tax need not be paid, however, until earnings come into the United States.
While some companies regularly bring home, or repatriate, their foreign income, many do not. Instead, they park these profits overseas to avoid taxes. An estimated $1.2 trillion to $1.5 trillion is stashed abroad for this reason.
Corporations have been waging a multimillion-dollar lobbying campaign for months seeking an offshore profits tax repatriation holiday and a territorial system.
Public interest groups immediately attacked the Camp plan, with the left-leaning Tax Justice Network saying the plan's foreign profits provisions would worsen the deficit and encourage companies to shift profits and jobs overseas.
(Additional reporting by Richard Cowan; editing by Gerald E. McCormick and Steve Orlofsky)