Proposed Corporate Tax Reform Receives Mixed Reception

February 22, 2012 Updated: October 1, 2015
President Barack Obama speaks on his 2013 budge
President Barack Obama speaks on his 2013 budget to students at Northern Virginia Community College in Annandale, Va., on Feb. 13. Key features of the budget include rebuilding jobs, increasing innovation and manufacturing, deficit reduction, and tax reform. (Jewel Samad/AFP/Getty Images)

President Barack Obama’s proposal to reform the corporate tax structure has critics concerned that small businesses are being left out.

Obama intends to simplify the tax code, eliminate a range of tax loopholes and subsidies, and lower the corporate tax rate from 35 percent to 28 percent. “It’s a framework that lowers the corporate tax rate and broadens the tax base in order to increase competitiveness for companies across the nation,” he said in a Feb. 22 statement.

Obama added that the present corporate tax system was “outdated, unfair, and inefficient” and decried it for encouraging American businesses to move offshore.

“It’s not right, and it needs to change,” he said.

Treasury Secretary Timothy Geithner said the U.S. corporate tax system was among the highest in the developed world. He blamed the high tax rate on loopholes that were only available for certain industries but cost taxpayers millions of dollars a year.

“You can call these tax preferences, tax expenditures, loopholes, incentives, or tax benefits. But whatever you call them, they are subsidies,” he said.

Apart from lowering the corporate tax rate and removing loopholes, Geithner identified four other areas of reform in the proposal. They include replacing tax deductions for companies relocating overseas with tax credits for coming back home, lowering tax rates for manufacturing, simplifying the tax system for small businesses, and making sure all new incentives are paid for.

Mixed reactions

House Republicans were mixed in their response. House Ways and Means Chairman Dave Camp (R-Mich.) acknowledged the administration’s efforts to address corporate tax reform—particularly in lowering tax rates and closing loopholes—but said he would have liked to see broader reforms, particularly in the area of individual tax.

“So, while this is a good step by the administration, I will borrow from the president’s own words to Congress from just yesterday, ‘Don’t stop here. Keep going,'” he said in a statement.

Sen. Orrin Hatch (R-Utah), ranking member of the Senate Finance Committee, was dismissive, describing the proposal as a “set of bullet points designed more for the campaign trail than an actual blueprint for fixing our tax code.”

Hatch expressed particular concern that the proposal had ignored small businesses, noting that small and family businesses accounted for roughly half of U.S. private sector jobs.

“Those families and businesses deserve a stronger, more efficient tax code,” he said.

The National Small Business Association (NSBA) said there were good and bad points in the proposal.

“Although the proposal does include some positive language for small-business tax credits, NSBA believes firmly that the only way to ensure fairness, transparency, and eased complexity of the U.S. tax code is broad reform,” said NSBA President Todd McCracken in a statement. “And that must also include individual income taxes.”

Geithner said the proposal would be seen by some as “politically contentious,” but was designed to start the process of fundamental tax reform.

“Our tax reform framework is designed to begin the process of building bipartisan consensus on a better growth strategy for the long term,” he said.

Geithner noted that he spoke with Rep. Camp and Sen. Hatch and will meet with them to discuss the proposal in coming weeks.