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President Obama's proposal to reform the corporate tax code is specifically designed to hit oil companies hard and benefit three economic endeavors the administration favors: manufacturing, clean energy and private-sector research and development.
"Our current corporate tax system is outdated, unfair, and inefficient," Obama said. "It's not right, and it needs to change."
Obama's election-year proposal, which is less generous to industry than proposals floated by his would-be Republican challengers, would cut the top tax rate paid by American companies to 28 percent, down from 35 percent, the highest rate in the industrialized world. The proposal would make up for lost revenue by slashing dozens of existing loopholes and tax breaks enjoyed from Wall Street to Main Street, raising an additional $250 billion over 10 years, according to senior administration officials.
"We want to restore a system in which American businesses succeed or fail based on the products they make and the services they provide, not on the creativity of their tax engineers or the lobbyists they hire," Treasury Secretary Timothy Geithner said Wednesday as he unveiled the president's latest tax proposal.
Geithner singled out oil and gas companies as some of the corporations that would be hardest hit by the changes. The administration had previously sought to abolish billions of dollars in federal subsidies that now go to those industries, but was blocked by Congress.
"We would certainly take out [tax breaks for] oil and gas," Geithner said.
The administration's proposal would otherwise aid three sectors of the economy that "benefit the economy as a whole:" manufacturing, research and clean energy, Geithner said.
The proposal would give manufacturing companies a special 25 percent corporate tax rate and encourage domestic production by applying a new tax on profits that U.S. companies generate overseas. The proposal would retain the popular research and development tax break.
Republicans and some economists criticized the plan, saying it doesn't go far enough and that it's another example of the Obama administration picking winners and losers in the private sector.
"The U.S. would still be above the average world corporate tax rate, which is closer to 25 percent," said Brad Badertscher, of the University of Notre Dame's Mendoza College of Business. "Therefore it is unclear how this new proposal would allow U.S. firms to be more competitive."
The president's proposal is unlikely to advance in Congress in an election year, particularly with Republicans firmly in control of the House, analysts said. But advancing a business-tax plan now will allow Obama to offer concrete alternatives to a flurry of pro-business initiatives being offered by the Republican presidential candidates vying for the chance to challenge Obama in the fall. The tax proposal also is likely to be offered as evidence that the president is not anti-business, as his Republican critics contend.
Still, administration officials hinted at the long odds they would face actually enacting Obama's plan, talking about the business tax proposal only as a "framework" and "starting point" rather than as a fully developed initiative the president would try to drive through Congress.
Geithner said he has discussed the proposal with House Ways and Means Committee Chairman Dave Camp, R-Mich., and Senate Finance Committee Chairman Max Baucus, D-Mont.
"This process will take time," Geithner said. "Our tax reform framework is designed to begin the process of building a bipartisan consensus."