As part of the joint plan from the White House and the Treasury – which can be accessed here – manufacturing firms would see a lower rate of 25% applied to their taxable income.
The report claims that closure of “dozens” of tax loopholes and subsidies, and the subsequent reinvestment of these savings to lower the corporate tax rate to 28%, would put the US “in line with major competitor countries and encourage greater investment in America”.
In line with Republican presidential candidate Rick Santorum’s pledges, Obama concentrates on strengthening American manufacturing and innovation. However, while Santorum wants a 0% rate for manufacturers, Obama is less generous.
“The Framework would refocus the manufacturing deduction and use the savings to reduce the effective rate on manufacturing to no more than 25%, while encouraging greater research and development and the production of clean energy,” said the report.
To “strengthen the international tax system” and encourage domestic investment, the Framework proposes establishing a new minimum tax on foreign earnings, which, it says, will also “discourage a global race to the bottom in tax rates”.
REACTION
Senator Orrin Hatch, ranking Republican on the Senate Finance Committee
“This so-called framework is murky, ill-defined and contradictory to the goal of reducing complexity and making our tax code more efficient.”
“I’d hoped the White House would recognise the severity of the problem with a real plan and real leadership. But, after months of promises, we instead got a set of bullet points designed more for the campaign trail than an actual blueprint for fixing our tax code.”
John Engler, president of the Business Roundtable
“It’s official: President Obama, congressional leaders of both political parties, and the Republican candidates for president all support lowering corporate tax rates. Now let the debate begin. That debate must focus on the best achievable rate to promote US economic growth and job creation without raising taxes and while creating a competitive territorial system.”
“The last comprehensive tax reform in the US was a generation ago. The tax system has become increasingly outdated, complicated and uncompetitive as the world economies have grown more interconnected. The framework adds complexity and raises taxes, moving us away from the rest of the world.”
Representative Sander Levin, ranking Democrat on the House Ways and Means Committee
“The administration has put the focus of corporate tax reform where it needs to be: on promoting investment, job creation and especially manufacturing in the US, not overseas.”
Representative Dave Camp, chairman of the House Ways and Means Committee
“I appreciate that the Administration has finally weighed in with a framework for corporate tax reform.”
“More than half of all business income is taxed at the individual rather than corporate tax rates, and a corporate-only proposal does not address the needs of those job creators, the vast majority of which are small businesses.”
Rob Atkinson, president of the Information Technology and Innovation Foundation
“It is a no-brainer that we need to overhaul corporate taxes. It is unfathomable that the US has the second highest statutory and among the highest effective corporate tax rate in the world. So the Obama Administration deserves credit for taking this on.”
“However, the Administration’s proposal has too much of “robbing Peter to pay Paul” and holds back on real reform in the name of fiscal austerity. “Not adding a dime to the deficit” might win votes but it won’t fix a fundamentally uncompetitive US corporate tax code.”
Statement from the PACE coalition
“The proposed minimum tax on foreign income – which exists in no other advanced economy – would make it even more difficult for US companies to compete in foreign markets. Most other nations are moving in the opposite direction, seeking to make their companies more competitive in international markets, as they recognise that growth abroad supports job growth at home.”
Timothy Geithner, US Treasury Secretary
“The president’s framework would boost growth and provide American companies with incentives to invest in the US while simplifying and cutting taxes for our small businesses.”
Thomas Donohue, president of the US Chamber of Commerce
“We’re disappointed the White House proposal does not adopt a territorial tax system that would put an end to the double taxation of profits earned by US companies overseas. America is the only major country that disadvantages its own firms competing globally. These companies employ millions of Americans here at home and make significant contributions to our economy.”
FURTHER READING
Geithner: Tax reform on its way
Why Rick Santorum is promoting a manufacturing-friendly tax plan
REACTION: Obama's inconsistent budget
Why the US reform of extender provisions cannot wait for tax code overhaul