Daily Tax Update - February 14, 2012: Geithner: Framework for Overhauling Corporate Taxes to Be Released Next Week

GEITHNER:  TREASURY TO RELEASE FRAMEWORK FOR CORPORATE TAX REFORM:  Today, in testimony before the Senate Finance Committee on the President’s FY 2013 budget, Treasury Secretary Tim Geithner said Treasury will soon release a corporate tax reform proposal that will be "more specific than principles but not as detailed as legislative language."  Geithner said the framework would be released next week.  Congress is in recess for Presidents’ Day next week.

  • Geithner testified, "While the proposed spending cuts are an important component of reducing our deficit, the President has recognized that we cannot responsibly address our fiscal situation without raising additional revenue.  As a share of GDP, tax revenues from 2009 to 2011 were at their lowest level as a share of the economy since 1950.  Our current tax code is inefficient and filled with loopholes.  We need a tax system that is simpler and more efficient, one where businesses and individuals play by the rules and pay their fair share.  Comprehensive tax reform will strengthen our competitiveness, promote fiscal sustainability, and restore fairness.  As the President has emphasized, these reforms should follow a set of key principles.  They should be fiscally responsible, so that the tax code promotes jobs and growth while collecting appropriate levels of revenue.  The code should be simpler, combining lower tax rates for individuals and corporations with fewer loopholes and carve-outs—which will increase efficiency so that businesses compete based on the products and services they provide, not the tax breaks they are able to collect.  And finally, it should be fair, so that middle-class Americans are not carrying more than their fair share of the tax burden."  Geithner added, "As with corporate tax reform, for individual reform the best path would be to enact comprehensive tax reform that meets the principles the President laid out last September and revisited as part of the State of the Union.  The key to these reforms is fairness.  The individual income tax cuts of the last decade were tilted toward the wealthy and have contributed to tax revenues falling to near their lowest level as a share of GDP in 60 years.  As we consider individual reforms, families with incomes under $250,000 should not see a tax increase.  But the most fortunate Americans, the wealthiest 2 percent, must contribute a greater share of their income in order to correct the imbalance in our system.  And in keeping with the Buffett Rule, high-income families should not face tax rates that are lower than those faced by middle-income families.  As we move to consider these reforms, the Budget presents a path that raises the appropriate amount of revenue within the context of the current tax system.  The President’s Budget proposes a number of steps in line with his tax reform principles, including:
    • Allowing the high-income 2001 and 2003 tax cuts to expire;
    • Setting a maximum 28 percent rate at which upper-income taxpayers could benefit from itemized deductions and certain other tax preferences to reduce their tax liability; and
    • Eliminating the carried interest loophole that allows some to pay capital gains tax rates on what is essentially compensation for services.
  • These steps in the direction of a reformed system would reduce the deficit by about $1.5 trillion over the next 10 years and would set in motion the process of broader reform."
  • On the issue of corporate tax reform, Geithner said, "Right now, the United States has one of the highest statutory corporate tax rates in the world, but the large number of loopholes and special interest carve-outs means that effective tax rates vary widely by industry, even by company, and allow some corporations to avoid paying income taxes almost entirely.  Even though our statutory corporate tax rate is among the world’s highest, the corporate tax revenue we collect, as a percentage of GDP, is relatively low for advanced economies.  There are too many tax provisions that favor some industries and investments and benefit only those who receive them, rather than society as a whole.  This creates problems beyond forgone revenue: it forces some businesses to carry a larger share of the tax burden than they would under a more equitable system, and it also hurts overall economic growth by distorting incentives for investment and job creation."  Geithner added, "Soon, the Administration will release a framework for reforming the corporate tax system.  This proposal will lower the maximum statutory rate, limit the ability of firms to shift profits to low tax jurisdictions, eliminate tax expenditures that have no positive spillovers to society as a whole, and bring a sense of permanence to various provisions in the corporate income tax code.  In short, it will help level the playing field for businesses and allow the government to collect needed revenue while promoting economic growth.  The President’s Budget proposals, if implemented, would move the existing corporate tax code in the direction of these principles but would not eliminate the need for deeper reforms."
  • Testimony can be accessed here.

MISCELLANEOUS GUIDANCE RELEASED:

Notice 2012-19 provides adjusted limitations on housing expenses for tax year 2012 for purposes of section 911 of the Internal Revenue Code.

INTERNAL REVENUE SERVICE - CIRCULAR 230 DISCLOSURE:
As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

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