On December 3rd, President Obama said that the U.S. needs to close unspecified tax loopholes to pay for any reduction in the corporate tax rate. “There is definitely a deal to be done. If we get some certainty on the federal budget we can work on tax reform,” Obama said.
The President referred to his 2012 Framework for Business Tax Reform. At that time, Obama proposed a permanent research tax credit, a minimum tax on overseas profits, and small business simplification. In exchange for eliminating unspecified tax preferences, the Framework offered a top corporate tax rate of 28 percent with lower rates for certain taxpayers.
“We put out a general concept on corporate tax reform several years ago. The idea has been to close loopholes and lower rates,” the President said. “My instinct is to get a process started on tax reform early,” Obama added. The President predicted a contentious debate.
Obama identified two significant hurdles to tax reform. “The first is the classic problem: people are favorable in the abstract but not in the specifics,” the President said. “If we are going to accomplish revenue neutral tax reform that lowers the corporate rate we will have to go after some deductions that people are comfortable with. In the short term, there will be some winners and losers. The question becomes, are folks willing and ready to make that move?”
“The second problem is solvable but tricky: combining corporate tax reform with individual tax reform,” the Obama said. The President added he is committed to providing simpler and lower tax rates to small businesses but cautioned that business tax reform must not increase the tax burden on individuals. “I am not willing to structure a tax deal that blows up the deficit or shifts taxes from businesses to working families.”