By Jay Heflin - 02/23/10 06:46 PM EST
Sens. Ron WydenRon WydenPuerto Rico debt relief faces serious challenges in Senate Senate panel delays email privacy vote amid concerns Overnight Finance: Puerto Rico bill clears panel | IRS chief vows to finish term | Bill would require nominees to release tax returns MORE (D-Ore.) and Judd Gregg (R-N.H.) noted that lowering the corporate tax rate from 35 percent to 24 percent would help American businesses and boost the economy. Their proposal would also simplify the tax code by cutting the number of income tax brackets in half.
But Wyden and Gregg seem to be the only ones talking about tax reform. Efforts to enact jobs legislation and move healthcare legislation have quieted talk on the topic.
“At this point, there are three or four meetings we’ve had this year and we haven’t gotten to the point of discussing it,” said Sen. Chuck GrassleyChuck GrassleyClinton email headache is about to get worse Ten senators ask FCC to delay box plan Overnight Cybersecurity: Guccifer plea deal raises questions in Clinton probe MORE (Iowa), the ranking Republican on the Senate Finance panel, when asked if he and panel Chairman Max BaucusMax BaucusWyden unveils business tax proposal College endowments under scrutiny The chaotic fight for ObamaCare MORE (D-Mont.) have plans to reinvigorate tax reform talks.
A Senate aide said enacting tax reform this year would be an “uphill climb.”
House Ways and Means Chairman Charles Rangel (D-N.Y.) made a clear distinction between job creation and tax reform: “We’re being consumed with jobs and healthcare … I don’t think my [constituents] without work are talking about reform as much as they are talking about jobs.”
The Wyden-Gregg proposal reduces the 35 percent corporate tax rate to 24 percent, a level rivaling rates for many of the OECD countries the U.S. competes against when drawing commerce to its shores. It also removes several loopholes multinational corporations use to improve their bottom lines.
Gregg said their proposal has attracted the attention of the multinational community, which normally resists tax reform.
“We’ve spoken to a number of multinational companies that see this rate as extraordinarily attractive and [they] seem to be receptive,” Gregg said. “A 24 percent rate is just a huge boon to American businesses.”
To get that rate, multinationals must give up coveted deferral provisions that allow them to delay paying taxes on certain foreign-sourced income by keeping profits in foreign countries instead of investing them in the U.S.
Trading popular loopholes for a lower tax rate could spark intra-company warfare, business lobbyists say, as CEOs who prefer the lower rate square off against CFOs who believe loopholes are far more valuable.
Rangel has tried for years to lower the tax rate and close loopholes while garnering political support for the effort. His most recent bill offered a 30 percent corporate tax rate but he is open to further lowering the rate to 28 percent. However, getting buy-in from corporate America has been a hard slog.
“They [corporate leaders] are OK when I talk to them individually,” Rangel said. “But collectively they don’t want to put their fingerprints on anything.”
The key to successful tax reform is striking a balance between lowering the tax rate and closing loopholes and exemptions used by corporations. Reaching that goal has been elusive since the 1986 Tax Reform Act.
“There is a magic number somewhere, but I think they’re far from reaching consensus about what that number is and what people are willing to give up,” said Ralph Hellman, senior VP for government relations at the Information Technology Industry Council, when asked about the general state of tax reform talks on Capitol Hill.
“It might take another year or two to reach that consensus,” Hellman said.