House Tax Writer Keen To Advance US Tax Reform

by Leroy Baker, Tax-News.com, New York

26 February 2009

US Representative and chief House tax writer, Charles Rangel, has suggested that the country's rate of corporation tax could be cut as part of legislative efforts to reform the US tax code.

After participating in a breakout session on tax reform at Monday's White House Fiscal Responsibility Summit, Rangel, who chairs the House Ways and Committee, commented that there was "near unanimous" agreement on the need to lower America's corporate tax rate - which is one of the highest in the world - and improve the international competitiveness of US companies.

"I am encouraged by the discussion we had on this serious issue," the New York Democrat stated.

"As can be expected, folks had different views on how we handle the individual rates in a tax reform plan moving forward," he added. "We may not all agree on every solution presented, but today’s summit helped lay the groundwork for future discussions in Congress and its Committees to build bipartisan consensus on policy proposals."

Rangel's remarks suggest the possibility that his Tax Reduction and Reform Act, first introduced into Congress in October 2007 and amended a year later, could be revived. Dubbed by Rangel as the "mother of all tax reforms" this bill initially proposed that the US corporate tax rate be cut to 30.5% from its current 35%, although the revised version would have reduced the rate further, possibly to 28%. The bill also proposed to permanently extend the enhanced expensing rules that help small businesses. However, it would have been offset by repealing the domestic production activities deduction, repealing the worldwide allocation of interest rules, limiting treaty benefits for certain deductible payments, and limiting tax benefits for controlled foreign companies.

By repealing features of the US tax code that encourage companies to use international tax planning methods to mitigate US taxes - thus discouraging them to invest domestically - to pay for a reduction in corporate tax, this bill could appeal to President Obama, who has made such a goal a key feature of his own tax reform agenda.

"If you closed loopholes you could actually lower rates," Obama concurred during the summit. "That's an area where there should be the potential for some bipartisan agreement."

Obama talked tough on corporate tax issues during last year's election campaign, declaring that he would "stand up to special interest carve outs" and eliminate "corporate loopholes" and tax breaks that distort the tax code and benefit "a few powerful interests."

So far the new President has demonstrated that he is prepared to provide business tax relief, but mainly for smaller firms; he has promised to remove capital gains tax for start-ups and small enterprises, while tax relief in the recently-enacted stimulus legislation was whittled down to the detriment of big business. Larger corporates and multinationals it seems are going to have to play ball with Obama and the Democratic Congress if they want a share in the tax reform spoils.

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