Rangel Seeks Cut In US Corporate Tax

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

24 November 2008

Representative Charles Rangel, who chairs the tax law-writing House Ways and Means Committee, is working on new proposals to lower America's corporate tax rate, which could be introduced as part of President-elect Barack Obama's corporate taxation reforms.

Rangel has said that he is revising a previous bill first introduced into the House of Representatives last year which would have lowered the corporate tax rate to 30.5% from its current level of 35%, paid for by the closure of certain corporate tax 'loopholes' and the elimination of some other tax breaks such as the manufacturing deduction.

Rangel's new bill would reduce the corporate tax rate further, possibly to 28%, but would also be funded by removing some of the special interest tax breaks and narrowly-targeted tax breaks which litter the US tax code. In this respect, Rangel's proposals strike a similar chord to the tax plans espoused by Obama, who has also talked about lowering the corporate tax rate for certain companies, but on the proviso that they avoid the use of such tax breaks and invest profits domestically. It is expected, therefore, that Rangel's new proposals could find their way into one of the first tax bills to be discussed by the new Congress in 2009.

Rangel dubbed his 2007 bill the "mother of all tax reforms" and claimed that it would have been the most comprehensive change to the US tax code since the Reagan reforms in 1986. Besides proposing to repeal the alternative minimum tax and increase individual tax breaks and credits, the bill would have permanently extended 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, limiting treaty benefits for certain deductible payments, and limiting tax benefits for controlled foreign companies.

Obama's proposals, while still vague, hope to achieve similar goals in the corporate tax sphere. He also intends to reform deferral to end the incentive for companies to "ship jobs overseas". He also wants to: close the offshore pension loophole; close domestic tax loopholes by clarifying the economic substance doctrine; increase reporting of capital gains; and eliminate special tax breaks for oil and gas companies, among other proposals.

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