Obama Corporate Tax Reform Still Leaves U.S. at Disadvantage, Business Groups Say

By Fred Lucas | February 22, 2012 | 3:50pm EST

President Barack Obama, accompanied by Vice President Joe Biden, talks about the importance of the payroll-tax cut and jobless-benefits extension compromise that bi-partisan House and Senate conferees reached last week, Tuesday, Feb. 21, 2012, in the Eisenhower Executive Office Building on the White House complex in Washington. (AP Photo/J. Scott Applewhite)

(CNSNews.com) – President Barack Obama’s corporate tax reform proposal, lowering the rate from 35 percent to 28 percent while eliminating certain "loopholes," could still leave U.S. companies at a competitive disadvantage with the rest of the world, critics said.

Obama said the current corporate tax system is complicated and punishes companies that choose to stay in the United States rather than relocate.

“That’s why my administration released a framework for reform that simplifies the tax code, eliminates dozens of tax loopholes and subsidies, and promotes job creation right here at home,” Obama said in a statement Wednesday. “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.

“It cuts tax rates even further for manufacturers that are creating new products and manufacturing goods here in America. Finally, because no company should be able to avoid paying its fair share of taxes by moving jobs and profits overseas, this framework includes a basic minimum tax for every multinational company,” the president said.

The proposal, if enacted, would still leave the United States corporate rate eight points higher than the average country in the Organization for Economic Cooperation and Development, he said.

The United States is on the way by April to having the highest corporate tax rate in the industrialized world after Japan lowered their rate.

No other developed country imposes a “minimum tax” on businesses, said John Engler, president of the Business Round Table.

“The last comprehensive tax reform in the United States was a generation ago,” Engler said in a statement. “The U.S. tax system has become increasingly outdated, complicated and uncompetitive as the world economies have grown more interconnected.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.”

Engler added that Obama ignored the suggestions of his deficit commission – or the Bowles-Simpson commission – to move away from an “international” corporate tax system to a “territorial” tax system.

Under the current U.S. system – the international system – a U.S. company that sells products in the United Kingdom has to pay income tax on those sales to both the U.S. and the U.K. However, in a country such a France, that has a territorial system, a French-based company selling products in the U.K. would only pay taxes on those profits to the U.K.

“Thus, a U.S. company’s profit margins on its U.K. sales are reduced by the amount of the tax. The difference in tax treatment puts the U.S. company at a competitive tax disadvantage relative to its foreign competitor,” according to a 2005 report by the congressional Joint Economic Committee.

Sen. Orrin Hatch (R-Utah), ranking member of the Senate Finance Committee, said the plan lacked detail.

“Unfortunately, this so-called framework is murky, ill-defined and contradictory to the goal of reducing complexity and making our tax code more efficient,” Hatch said in a statement. “Last fall, Republicans on the Senate Finance Committee proposed reducing our corporate tax rate to 25 percent and moving to a more efficient territorial tax system.

“Instead, the administration today only reduces the corporate rate to 28 percent and retains the antiquated worldwide system of corporate taxation. Instead of simply reducing and eliminating tax preferences, the Administration proposes more. Instead of putting forward real ideas, there’s more of the same political rhetoric that is not designed to move reform forward,” Hatch added.

National Association of Manufacturers (NAM) President Jay Timmons also said the proposal does not go far enough.

“The President suggests some changes that will help, but many of the proposals completely miss the mark and would make U.S. businesses less competitive,” Timmons said in a statement. “In addition, the two-thirds of manufacturers who file as individuals will receive no relief from the current burdensome tax system. There is a long way to go to address the 20 percent cost disadvantage that manufacturers face every day.”

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