By Bernie Becker and Kevin Bogardus - 03/18/13 11:41 PM EDT
A prominent lobby group for chief executives is launching a campaign to build public support for reducing the corporate rate to 25 percent and limiting the taxation of offshore income.
John Engler, the president of Business Roundtable, and other officials at the lobby shop say the campaign’s purpose is to educate the public about America’s outdated tax system and the drag it places on U.S. businesses.
“Business leaders believe the U.S. economy will never get healthy unless we modernize our tax system,” Engler, a former Republican governor of Michigan, told reporters on Monday. “We remain at a disadvantage in the world marketplace. That has to change.”
But the Roundtable’s campaign could also serve to widen the gulf between corporate America and small businesses — two groups that have different priorities when it comes to tax reform and were widely seen as being at odds during the “fiscal cliff” debate.
Some small-business advocates felt that corporate heavyweights abandoned them late last year by giving tacit blessing to legislation that would allow the top individual tax rate to rise to 39.6 percent.
That tax rate increase, which became law early this year, led to higher taxes on thousands of small businesses that pay taxes through the individual code. The outcome left advocates for S corporations and other pass-through entities with bruised feelings.
The Roundtable and its CEOs were showered with attention from President Obama and his aides during the fiscal-cliff talks, and have been courted on a wide range of other issues.
Other trade groups, often GOP-leaning, thought Big Business was getting preferential treatment, and top congressional Republicans chided the Roundtable and other corporate interests for their stance.
“What they did in December, saying they were open to individual rate hikes, was absolutely appalling,” a business group lobbyist told The Hill. “I will be astonished if they put out a comprehensive tax package that seeks to protect the individual tax rate for the S corp., pass-through community.”
“The attitude of some of the big guys is a back of their hand to the pass-through community,” the lobbyist added.
The Roundtable’s new campaign is focused on the corporate tax system, though Engler also emphasized that his group was pushing for comprehensive tax reform, and was itself concerned by the tax rate hikes in the fiscal-cliff deal.
Other corporate coalitions, including the newly formed Let’s Invest for Tomorrow America, or LIFT America, applauded the Roundtable’s efforts.
The CEO group — which says it will spend well into six figures on the campaign, using both print advertisements and digital outreach — calls for reducing the top corporate tax rate from 35 percent to 25 percent, a marker that’s also been laid down by Rep. Dave Camp (R-Mich.), the chairman of the House Ways and Means Committee.
Roundtable officials are also pressing for a revenue-neutral corporate reform, meaning the rewritten code wouldn’t bring in more or less revenue than it did before, and the adoption of a modified territorial system, which would shield offshore corporate income from taxation.
Those proposals could put many popular tax breaks on the chopping block, but Engler said he thought even some major corporations that would pay more under a reformed system would support the changes to get a more simplified code.
Engler acknowledged that the Roundtable’s plan would only indirectly help smaller businesses, through an improved economy, and said it was natural that big and small business would not have the same wish lists for tax reform.
“We share the priority that we want the most competitive tax code that we can get for our country,” said Engler, who also noted that the fiscal-cliff deal did add more permanence to the individual tax system.
But, Engler added, a local car dealership “doesn’t have to worry about foreign income.”
Even as Roundtable officials also noted that global tax issues affect more and more small businesses — especially manufacturers — they said that a major reason for their campaign was to educate a public they think is more knowledgeable about the recent individual tax rate increases and other features of the individual code.
Engler said the Roundtable has to be ready for tax reform in any form it might present itself, especially given that Democrats and Republicans appear to have more common ground on how to deal with corporate taxes. The two parties remain at loggerheads over whether, after the fiscal-cliff deal, more revenue is needed to reduce deficits.
“We’re prepared to do corporate-only, business-only, comprehensive — all three,” Engler said. “We don’t get to call the shots on that, but we hope we’re prepared — well prepared — whichever way they choose to go.”
Camp and the Senate’s top tax writer, Finance Chairman Max Baucus (D-Mont.), have both called for a tax rewrite that would overhaul the entire code. Camp has already released draft proposals on tax reform that would affect both individual and corporate taxes, including a draft on international corporate issues and a proposal on small businesses. The small-business draft, released last week, was welcomed on K Street because it would simplify rules for pass-throughs and provide tax relief for small businesses.
“To us, tax reform means comprehensive. That means corporate, individual and pass-through,” said Brian Reardon, executive director of the S Corporation Association. “In our experience, the vast majority of the business community is united around that idea.”
Chris Whitcomb, tax counsel at the National Federation of Independent Business, said the needs of small businesses need to be front and center in the discussion of tax reform, but added he hoped his group and corporate advocates could get on the same page moving forward.
“I wouldn’t characterize it at as we’re working together very closely,” Whitcomb told The Hill. “Not because of any bad blood at this point, but because each of the areas we’re focusing on is so detailed.”
Rep. Patrick Tiberi (Ohio), a senior Republican on the Ways and Means panel, noted that not all corporate chief executives are worried solely about their code, and that some have totally embraced the idea of comprehensive reform.
“I think there are some CEOs that could care less, and just would prefer to have it be for them,” Tiberi, the chairman of the Ways and Means subcommittee that deals with taxes, told reporters last week. “And that’s obviously something they’re entitled to. But they’re not making the policy. We are.”