The Obama administration will propose today reducing the U.S.corporate tax rate to 28 percent from 35 percent along withremoving tax breaks for companies to help offset lost revenue, anadministration official said.

The plan would eliminate dozens of tax breaks and reshape thecurrent manufacturing deduction to reduce the tax rate onmanufacturing to 25 percent, according to the official, whooutlined the proposal on condition of anonymity because it hadn'tbeen released. The restructured tax code would still includeincentives for research and development and renewable energy.

President Barack Obama and Treasury Secretary Timothy F.Geithner have said corporate taxation is an issue that couldprovide an area for agreement with congressional Republicans andbusiness groups.

“There is, I hope, more room for common ground on this, and weneed to use this opportunity now to start to lay the foundation forthe fundamental change ahead,” Geithner told the House Ways andMeans Committee on Feb. 15.

The plan may face opposition from Republicans who want net taxcuts, corporations who say the rate reduction should be deeper andcompanies that would lose tax breaks they now enjoy.

Business groups, including the U.S. Chamber of Commerce, havespent the past three years criticizing the administration'sapproach to international taxation, which has focused on making itharder for companies to defer U.S. taxes on income earned outsidethe country.

“Countries around the world are promoting the internationalcompetitiveness of their companies and creating jobs by adoptingmodern tax laws that enhance the ability of their locallyheadquartered companies to serve foreign markets,” a coalition ofbusiness groups wrote to Obama on Feb. 8. They expressed concernObama favors proposals that “would go in exactly the oppositedirection,” raising taxes on U.S. companies with overseasoperations.

Geithner told the Ways and Means Committee the administrationwill propose retaining breaks that directly support U.S. investmentat home. Treasury officials previously said the research anddevelopment tax credit should survive a tax-code overhaul.

“We'll have a very important debate about which of those typesof incentives we should preserve, which ones we can't afford anylonger,” Geithner said.

Tougher Proposals

He also said the administration's proposals would be “tougher”in some ways than those outlined by congressional Republicans.

The current U.S. corporate tax rate is the second-highestmarginal rate in the world, behind Japan. Effective tax rates onU.S. companies are below 30 percent, in line with the tax burden inother major economies. Manufacturers in most industries can deduct9 percent of their earnings from domestic production, meaning thatthey already get a lower tax rate.

Companies such as United Parcel Service Inc. and Macy's Inc.have been urging a lowering of the corporate tax rate. Othercompanies, including Apple Inc. and Google Inc., have been lobbyingfor a tax holiday on profits earned outside the U.S.

Any change that isn't a net tax cut would tend to raise taxes oncompanies that benefit from many tax breaks, such as drugmakers andtechnology companies, while lowering payments for retailers andothers that don't get many tax breaks under the current system.

The U.S. expects to collect $236.8 billion in corporate incometaxes, or 1.5 percent of gross domestic product, in the fiscal yearending Sept. 30.

The administration has been working on a corporate tax overhaulfor more than a year. In his 2011 State of the Union address, Obamablamed “a parade of lobbyists” for the complex tax code that leavescompanies with disparate tax rates.

“Get rid of the loopholes,” he said. “Level the playing field.And use the savings to lower the corporate tax rate for the firsttime in 25 years — without adding to our deficit. It can bedone.”

This year, the tax portion of Obama's State of the Union speechfocused on international tax avoidance and said he wanted to removetax provisions that he said encourage companies to move jobsoutside the country.

“From now on, every multinational company should have to pay abasic minimum tax,” he said. “And every penny should go towardslowering taxes for companies that choose to stay here and hire herein America.”

Minimum Tax

The administration's budget, released Feb. 13, didn't providedetails on the minimum tax. It included corporate tax provisionsCongress has blocked.

Representative Dave Camp, a Michigan Republican who heads theHouse Ways and Means Committee, has released part of a proposedcorporate tax overhaul. Camp proposed a 25 percent top rate andchanges to the international tax system that would let companiesavoid paying U.S. taxes on most of the income they earn outside thecountry.

Last week, Camp urged Geithner to propose a comprehensivetax-code overhaul that would include changes to corporate andindividual taxation.

The proposals from the administration and Camp are designed tonot increase the federal budget deficit, in contrast with policiespromoted by the Republican presidential candidates.

Mitt Romney, the former Massachusetts governor, wants to reducethe corporate tax rate to 25 percent before eliminating any taxbreaks. Rick Santorum, the former Pennsylvania senator, wants tocut the rate to 17.5 percent and eliminate corporate taxes formanufacturers.

Newt Gingrich, the former House speaker, wants to cut the rateto 12.5 percent and let companies write off all capital investmentsimmediately.

Bloomberg News

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.