–To Meet W/Hill Leaders In Coming Weeks To Begin Consensus Building
WASHINGTON (MNI) – The following is the full text of U.S. Treasury
Secretary Timothy Geithner’s prepared remarks as he unveiled the Obama
administration’s framework for overhauling the U.S. corporate tax
system:
Today, the President proposes comprehensive business tax reform to
create better long-term incentives for investing in America.
The last time we fundamentally reformed the business tax code was
more than 25 years ago. That was before the Internet, before the cell
phone, before the rise of China and other emerging markets, before the
latest expansion in global investment and trade, and before a global
trend to lower corporate tax rates around the world.
The current tax code was written for a different economy in a
different era. It needs to be reformed and modernized.
Our business tax system is not just outdated. It is unfair and
inefficient.
Our corporate tax rate is now on pace to become the highest among
all developed economies.
The rate is high in order to pay for a tax code full of special
benefits for certain industries and certain activities. You can call
these tax preferences, tax expenditures, loopholes, incentives, or tax
benefits. But whatever you call them, they are subsidies. They are
spending through the tax code. And they are expensive, costing billions
of dollars a year.
Because many of these subsidies flow to certain industries and not
others, they are fundamentally unfair. Right now, companies in some
industries pay two or three times the effective tax rates as companies
in other industries. For example, the effective tax rate on an
investment in buildings or other structures by a manufacturing company
might be twice as high as the rate that applies to an oil or gas
company.
These subsidies distort choices about where companies should
invest, and they distort the allocation of capital.
For these reasons, our business tax system today is bad for
economic growth and job creation in the United States.
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.
The President’s framework for reform has five key elements.
First, the President believes we should eliminate dozens of tax
subsidies and loopholes so that we can lower the statutory corporate tax
rate to help promote economic growth and encourage investment in the
United States.
By getting rid of special preferences for special types of activity
and specific industries, we can reduce distortions that hurt
productivity and economic growth, permitting us to lower corporate tax
rates in a fiscally responsible way.
The President’s framework recommends lowering the corporate tax
rate from the current top rate of 35 percent to 28 percent, which is
close to the average of those that prevail across the other major
developed economies. This will help make our corporate tax system more
competitive and improve incentives for investing in the United States.
Second, the President believes tax reform should include strong
incentives to encourage companies to create and build things in America.
We propose a set of carefully designed, permanent incentives to lower
the effective tax rates for manufacturing. We would replace a complex
mix of temporary incentives that businesses cannot plan for or count on,
with a more limited set of long-term incentives to help provide
certainty for long-term investments.
Third, the President believes we should strengthen the
international tax system. Today’s global economy provides strong
incentives for companies to shift investment and profits to countries
with low tax rates. We want to reduce the opportunities the tax code now
provides to shift income and investment outside the United States. To do
this, we propose a new minimum tax on foreign earnings, stronger
safeguards against transfer pricing abuses, and replacing tax deductions
U.S. companies can now get for relocating overseas with tax credits for
expenses when U.S. companies bring operations back home.
Together with a lower statutory tax rate, these reforms will help
improve the incentives for investing in the United States.
Fourth, the President proposes to reduce the tax burden on small
business. We want to cut taxes on investment in and by small businesses,
and we want to simplify the tax system for small businesses so that they
can devote more of their earnings to investment and job creation and
less to tax compliance.
Finally, the President believes that business tax reform has to be
done in a fiscally responsible way so that we are not adding to future
deficits. Tax reform can help economic growth, but tax cuts do not pay
for themselves. We have to ensure that those incentives Congress chooses
to preserve as part of tax reform are paid for.
The President’s proposal is designed to start the process of
fundamental tax reform. This process will take time. It will be
politically contentious. Some will say these proposals are too tough on
business, and others will say that they’re not tough enough. Many will
fight to preserve specific tax preferences and subsidies, but every
preference Congress preserves for some requires the rest of America’s
businesses to pay a higher rate.
A long-term growth strategy for the United States requires tax
reform.
The United States has only 5 percent of the world’s population. We
produce about a quarter of the output and income of the entire global
economy. And in the coming years, the most populous parts of the world
are going to grow more rapidly than the American economy.
The rising fortunes of emerging economies offer tremendous economic
opportunities for the United States. If we are going to be able to take
advantage of those opportunities, we have to encourage
companies-American companies and foreign companies-to design, create,
and build things here in the United States.
This requires tax reform–not tax reform alone, but tax reform
alongside investments in education, innovation, and infrastructure.
Our tax reform framework is designed to begin the process of
building bipartisan consensus on a better growth strategy for the long
term.
I have already spoken to Chairmen Baucus and Camp as well as
Ranking Members Hatch and Levin, and we plan to meet in the coming weeks
to begin the process of building a bipartisan consensus.
** Market News International Washington Bureau: 202-371-2121 **
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