White House Looks To Change Business Taxes

Officials in the Obama administration want to lower the 35 percent corporate tax rate, which is one of the highest in the world. Ways to pay for that could include closing loopholes and eliminating deductions. David Wessel of The Wall Street Journal talks to Renee Montagne about some of the ideas.

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RENEE MONTAGNE, Host:

President Obama has other plans for business. He may try to overhaul the way companies are taxed.

To find out more, we turn to David Wessel. He's economics editor of The Wall Street Journal and a frequent guest on our program.

Good morning, David.

DAVID WESSEL: Good morning, Renee.

MONTAGNE: What exactly is the White House considering?

WESSEL: The administration is talking about proposing some pretty far- reaching changes to the way we tax business. Basically they want to lower the 35 percent corporate tax rate, which is one of the highest in the world, and pay for it by closing loopholes, eliminating deductions, and wiping out credits that have been crafted by Congress to encourage businesses to do things that Congress thinks business should do.

If the president proceeds, he's likely to insist that any changes raise as much money as the existing corporate tax does. It raised about 190 billion last year, a little less than usual, because the economy was so lousy.

MONTAGNE: Well, what would that mean? I mean if it's going to raise money to reduce the deficit, is that part of the issue or is it about cutting the money that corporations pay in taxes so in theory they will create jobs?

WESSEL: Actually neither. It's kind of a good question. What's the point of going through all the hassle of getting a bill like this through Congress if it isn't going to raise money to reduce the deficit and it isn't going to cut the overall amount of money that businesses pay in taxes?

And the idea is this, that over the past quarter century, the corporate tax has grown some barnacles. Some of them were crafted to encourage investment, others were narrow provisions with little economic merit, and so it has a very high sticker price. But many companies actually pay less than the sticker price. It represents a shrinking share of federal revenues. So what the president's going to say if he goes ahead with this is to say, we can make the system more efficient, we can make America more competitive, people won't have to spend so much time trying to figure out how to navigate around the loopholes and byways of the corporate tax. And he'll say that it's going to increase economic growth in the long run.

Now, the truth be told, it probably won't do much to increase economic growth, at least that's what economists say. But it's one of the few options on the table that the president can use that is kind of free, because he can make the corporate taxes to more efficient, make businesses work better without costing a lot of money.

MONTAGNE: And what does the business community think about this?

WESSEL: Well, the business community is divided because for every dollar one company saves, another company will have to pay another dollar in taxes. The winners are going to be happy, the losers won't be. The question is whether enough of them think it's a good deal for them and whether the flexibility and simplification or some of the other changes that come along with it might be in their interest.

For instance, the U.S is the only major economy in the world that tries to tax multinational companies on their worldwide profits, not just the profits made at home. Japan and the UK recently gave up with that and that's kind of unsustainable, and businesses would like to see that changed. If that's part of the deal, they'd be much more willing to come along with it.

MONTAGNE: So what are the chances Obama can pull this off?

WESSEL: Well, it's really too early to say. Secretary Geithner of the Treasury is meeting with a dozen or so corporate CFOs this week to talk about it. A number of Republicans have expressed interest in it. All signs are the president is going to propose something, perhaps in the State of the Union. He won't, though, spell out exactly which deductions he's going to get rid of, just sort of put down the idea of doing revenue and neutral tax reform. But it's a long shot, because any reform that is revenue neutral, meaning there is a loser for every winner, begins with the odds running against it.

MONTAGNE: David, thanks very much.

WESSEL: You're welcome.

MONTAGNE: David Wessel is economics editor of the Wall Street Journal.

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