Obama, Ryan Agree: Business Tax Codes Need Reform

Enlarge this image toggle caption Carolyn Kaster/AP Carolyn Kaster/AP

The president and the Republican chairman of the House Budget Committee were on opposite sides of a heated debate this past week over the best way to cut the federal deficit.

But there's one thing Obama and Wisconsin Rep. Paul Ryan agree on: They both want to overhaul the corporate tax code.

Earlier this year, Obama told the U.S. Chamber of Commerce the corporate tax system should be smarter, simpler and fairer.

"You've got too many companies ending up making decisions based on what their tax director says instead of what their engineer designs or what their factories produce," he said. "And that puts our entire economy at a disadvantage."

'Armies Of Tax Lawyers'

Business leaders often point out that America's top corporate tax rate — 35 percent — is the second highest in the world. That overstates the case somewhat, since the U.S. also offers a lot of tax breaks to corporations. But a study released by the Business Roundtable last week showed that even when those tax breaks are factored in, corporate taxes here are the sixth-highest in the world. What's more, Obama complains, those tax breaks are not shared equally.

"You know how it goes," he said. "Because of various loopholes and carve-outs that have built up over the years, some industries pay an average rate that is four or five times higher than others."

Last month, The New York Times reported that General Electric, the nation's biggest company, paid no taxes last year, despite more than $5 billion in U.S. profits. GE called the story misleading, but it was potentially embarrassing for Obama, since GE's chief executive chairs his business advisory board. White House spokesman Jay Carney says the president sees the issue as being bigger than just GE.

"It is part of the problem of the corporate tax structure," Carney said. "Companies hire armies of tax lawyers to understand how it works, and take advantage of the various loopholes that exist that are legal to reduce their tax burden. And he thinks in the name of better competitiveness and job creation we have to address our corporate tax structure."

On The Same Page

Enlarge this image toggle caption J. Scott Applewhite/AP J. Scott Applewhite/AP

Ryan, the House Budget Committee chairman, spoke about his interest in corporate tax reform at a Politico breakfast last month.

"We all are beginning to get a consensus that this corporate tax system we have is very uncompetitive," Ryan said. "It pushes jobs overseas. It locks up capital overseas. So that's one thing I think we have some hope of a compromise with the White House."

But it won't be easy. Obama says changing the corporate tax code can't make the deficit worse. So any reduction in tax rates would have to be offset by doing away with some of those tax breaks. Donald Marron, who heads the Tax Policy Center in Washington, says if lawmakers decide to do that, there are plenty of breaks to go after.

"The way I refer to it is we have a lot of Swiss cheese," he says. "There are a lot of holes in the tax base. And it would be much healthier economically to have a more filled-in tax base. More of a Parmesan and less of a Swiss."

But, Marron adds, every one of those "holes" in the tax cheese has some corporate mouse nibbling around it.

"Every one of those holes favors somebody," Marron says. "There are going to be winners and losers from any reform. And the typical dynamic is that the potential losers often do a better job of organizing."

Businesses that would lose if their tax breaks are eliminated will lobby hard to protect them. Still, in the Washington of the moment, any policy that appeals to both Obama and Ryan is worth at least a second look.