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Lew still sees US corporate tax reform prospects

23 January 2015   (0 Comments)
Posted by: Author: Mike Godfrey
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Author: Mike Godfrey (

Treasury Secretary Jack Lew still sees the possibility of bipartisan United States corporate tax reform, even though it was not mentioned in President Barack Obama's State of the Union address.

In his speech at The Brookings Institution on January 21, Lew said the US federal tax code "needs to be overhauled. … While our views on individual tax reform may be far apart [as was borne out by hostile Republican reaction to the President's proposed personal tax changes], there is a broad set of business tax reforms on which we should be able to agree."

He stated his belief that "the best way to achieve comprehensive tax reform today is to start with pro-growth business tax reform that lowers rates, simplifies the system, levels the playing field, and eliminates unfair and inefficient loopholes."

Lew pointed out that the US has "one of the highest corporate income tax rates in the world, but in practice, there is a wide disparity in effective corporate tax rates. Some corporations pay little or no income tax at all, while others pay the highest rate in the developed world."

"Over time, our tax code has become increasingly loaded down with special interest loopholes, deductions, and assorted tax subsidies," he added. "Some were good ideas whose time has now passed; others were special-interest giveaways from the beginning. The end result is a system rife with industry-specific tax breaks and widely disparate effective tax rates from one sector to the next."

He also concluded that "the current tax system makes it too hard for US businesses to compete with companies headquartered overseas," such that it has "driven" companies to engage in the corporate inversion strategies being used by US multinationals to move their tax residences abroad.

The Administration's view is that "many companies that invert want to take advantage of US infrastructure, education, and rule of law, but avoid paying their fair share of taxes," which is why Treasury took non-legislative action in September last year to "strip away some of the economic benefit of inversions." However, Lew also admitted that the longer-term solution to inversions could only be through overall corporate tax reform.

He claimed that that there is "a great deal of overlap" between the President's corporate tax reform framework and recent Republican proposals, including the one advanced by former Chairman of the House of Representatives Ways and Means Committee Dave Camp. He said that is particularly the case with the proposed reductions in the corporate tax rate, from 35 percent to 28 percent; the proposed 25 percent rate for manufacturers; and the proposal to move away from the current US "worldwide" international tax code.

However, in a remark that will be disputed by leading Republican lawmakers who wish to see complete "revenue neutrality" in corporate tax reform, Lew supported the President's view that any additional transitional revenue should be spent on infrastructural investments, rather than providing further tax cuts.

Nevertheless, Lew remained convinced that "we will get this done. … To that end, I look forward to continuing conversations with [the leading Republican and Democrat lawmakers on the House Ways and Means and Senate Finance Committees] to make progress on reform."

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