WASHINGTON (Reuters) - The Obama administration on Wednesday proposed a plan to revamp the U.S. corporate tax system, slashing the top tax rate to 28 percent, while eliminating many loopholes that companies rely on to cut their taxes.
Although the statutory top corporate tax rate is 35 percent, many companies pay nowhere near that much, with effective tax rates varying wildly because of the use of loopholes.
The administration’s plan has little chance of becoming law with elections approaching in November and Congress deeply divided over fiscal issues. Still, the plan opens debate on overhauling the tax code, perhaps in 2013 and beyond.
Among the tax breaks Obama aims to cull are those specific to oil and gas companies, and also broader breaks including accelerated write-offs for business investments.
Below are potential winners and losers under Obama’s plan:
Electronics and electrical equipment companies also pay high effective tax rates, according to Citizens for Tax Justice, a left-leaning tax think tank and activist group.
Other companies already paying close to the 35 percent statutory tax rate, include health insurer UnitedHealth Group (UNH.N), motorcycle giant Harley-Davidson (HOG.N) and Emerson Electric Co (EMR.N), according to Citizens for Tax Justice.
Other major companies paying a low effective or even negative rate, according to analysis by the group, include Baxter International Inc (BAX.N), Wells Fargo & Co (WFC.N) and Honeywell International Inc (HON.N).
According to CTJ, information technology, oil and gas, and utilities are among those paying far below the 35 percent rate.
Oil and gas companies in particular are likely to be losers, since the Obama administration wants to cut a major tax deduction now used by the industry.
Companies with major international components, specifically valuable intellectual property and other intangible assets, are likely to lose under the plan. Current tax rules let companies shift these assets abroad to trim taxes paid.
Many well-known corporations like Google Inc (GOOG.O) and Eli Lilly & Co (LLY.N) take advantage of tax havens like the Netherlands and Puerto Rico to locate divisions and assets, which suggests they could be hit by the proposed minimum tax on foreign profits.
The administration plan seeks a special 25 percent rate for manufacturing. It would do this by expanding a current tax break for manufacturing to 10.6 percent, from the current 9 percent, and focusing it more narrowly.
Obama also wants to double the credit for what he calls “high-tech” manufacturing, though which sectors would qualify is unclear.
Companies with big research and development costs could also benefit, given the plan’s bid to expand that popular credit.
Reporting By Kim Dixon; Editing by Kevin Drawbaugh and Matthew Lewis