(Reuters) – The Treasury Department on Wednesday will roll out a corporate tax reform plan from President Barack Obama, administration officials said on Tuesday, with expectations low for any major tax code overhaul in an election year.
The Obama plan will follow such principles as “fairness” that the president laid out in his State of the Union address to Congress last month, the officials said.
A cut in the corporate tax rate, which presently tops out at 35 percent, may be included, as well as a proposal for a minimum tax on overseas profits, analysts said.
Most analysts doubt that the convoluted tax system could be revamped by a deeply divided Congress in an election year.
After the presidential and congressional contests are decided in November, however, a number of major tax and budget issues will converge on Washington and new momentum for comprehensive tax reform may follow.
Treasury Secretary Timothy Geithner told a Senate committee last week that “dozens and dozens” of tax loopholes were being targeted for closure, but that some tax incentives would be kept for “creating and building stuff in the United States.”
Potomac Research analyst Greg Valliere said: “Even if Geithner floats something and members of both parties say they’re interested, I simply cannot see a reform bill passing before the election, close to a zero percent chance.”
He added: “I suppose anything would be possible in a lame-duck session in December, but something this huge and complex will require a thorough vetting, and that could take a year – or much longer.”
The last major rewrite of the tax code came in 1986 under Republican President Ronald Reagan, who raised corporate taxes.
Republican presidential candidate Mitt Romney on Tuesday called for a flatter, fairer and simpler tax code. He is scheduled to make a major economic speech on Friday in Detroit. Details of his tax plan may emerge before then.
FISCAL TREMORS CONVERGE
Corporations are clamoring for a cut in the top rate of 35 percent. That level is one of the world’s highest, though few U.S. corporations actually pay it due to assorted loopholes that make their effective tax rates lower.
“Everyone agrees on the basic principle of lowering rates in exchange for eliminating loopholes,” said Dean Baker, co-director of the Center for Economic and Policy Research, a think tank.
“However, I think it is important that the target be some increase in tax revenue. While we are at the top in marginal tax rates … we rank near the bottom in effective average taxation.”
Republican Representative Dave Camp, chairman of the U.S. House of Representatives tax-law writing Ways and Means Committee, wants to slash the top corporate rate to 25 percent.
Obama last week unveiled a $3.8 billion budget-and-tax proposal that called for aggressive government spending to boost the economy and for higher taxes on the rich.
On Friday, Congress approved extending a payroll tax cut through the end of 2012. Its expiration will coincide with several other fiscal earthquakes: the expirations of individual tax cuts enacted under President George W. Bush, and $1.2 trillion in automatic budget cuts across all government programs imposed as part of last year’s deal to raise the debt ceiling.
After these events and others, analysts said, thorough tax reform may be a realistic prospect. For now, they said, tax proposals will largely amount to political messaging.
(Additional reporting by Kevin Drawbaugh and Patrick Temple-West; Editing by Howard Goller andEric Walsh)