Both winners and losers are cool to Obama's corporate tax reform

Even business sectors that would gain an advantage from President Obama’s corporate tax overhaul have given a cool reaction to his proposal.

The poor reviews from groups that might be described as winners under the plan underscore the challenge the administration faces.

Technology companies say the administration’s plan is flawed because it is too cautious in revamping a code that will leave some companies better off.

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“Absolutely we should be picking winners and losers,” said Rob Atkinson, president of the Information Technology and Innovation Foundation. “The notion that we shouldn’t is pure ideology, and not based on any evidence.”

Manufacturers enjoy a lower effective tax rate and new breaks from the Obama plan, but they aren’t giving the White House a standing ovation either.

“You have to look at the whole plan on balance,” said Dorothy Coleman, vice president of tax and domestic economic policy at the National Association of Manufacturers (NAM). “There are good things, but if they are outweighed by bad things, it's hard to get behind it.”

And if the winners in the administration’s proposal are unhappy, the losers are downright salty.

One K Street outfit that draws a relative short straw from the Obama framework called a part of the proposal that deals with the tax treatment of inventory “absolutely dreadful.”

“We don't like the continued picking of winners and losers,” said Jade West, senior vice president of government relations for the National Association of Wholesaler-Distributors.

All in all, the reactions highlight what policymakers already knew. Overhauling a corporate tax code that Washington officials of all stripes believe is outdated and badly needs fixing will be a monumental undertaking. 

As it happens, few around the nation’s capital believe lawmakers and the Obama administration can actually finish off a corporate tax overhaul this year, especially with Democrats and Republicans battling for control of Congress and the White House.

But the business reaction also illustrates another hurdle policymakers face: lobbyists who have distinct ideas of how the code should be reformed, not to mention certain incentives they want to keep.

The Obama administration has proposed lowering the corporate tax rate from 35 percent to 28, and scrapping a slew of tax credits and deductions in the process.

But the plan does call for keeping, and at times even bolstering, tax preferences for manufacturing, research and development and clean energy.

Still, Atkinson said, the amplified R&D credit doesn’t go far enough in helping technology companies he said represent the future of the U.S. economy. He also argues Washington is missing an opportunity to bring America’s corporate tax rates more in line with other industrialized countries.

“The major thing the tax code needs to do is ensure that companies that are in global competition are not disadvantaged,” Atkinson told The Hill.

Manufacturers are the centerpiece of the administration’s plan, yet Coleman said the White House plan only touched on some of NAM’s corporate tax reform objectives.

The manufacturing group says its members need a lower corporate rate, as well as changes to the individual code, since that is how many small manufacturers file their taxes.

Finally, Coleman said the United States needs to shift to a system that would shield most foreign corporate profits from American taxation. GOP presidential candidate Mitt Romney offered such a plan this week.

The administration instead looks to install a basic minimum tax on American companies operating abroad.

Industry groups for the most part have given the administration credit for moving the ball forward.

By officially releasing a framework, Elaine Kamarck, who co-chairs the Reforming America’s Taxes Equitably, or RATE, Coalition, said, the White House was helping to identify potential areas of common ground with congressional Republicans — even if the tax rate included was higher than some industry groups would have liked.

“Everybody’s singing the same song — lower the rates, broaden the base,” said Kamarck, who was a White House aide to former President BClinton. “And when you get there, then you’re just down to numbers.”

Yet the reactions from different interest groups suggest Obama might have a greater challenge than just getting disparate interests to agree on the numbers in his plan.

With the campaign moving into full swing, many on K Street say November’s election will play a big role in deciding when, or if, policymakers have a breakthrough on tax reform.

"Once we get past this year, and if Obama gets reelected, I suspect he will have to come with up a real plan and not something to appease parts of his voting populace,” said Catherine Schultz, vice president of tax policy for the National Foreign Trade Council.

And if a Republican takes over the Oval Office, Schultz added, corporate tax reform might be put on the backburner as a new administration begins to take shape. 

“If it's not Obama, we are going to have wait even longer for tax reform because they will have set up their government,” Schultz said.