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Business Community Split on Corporate Tax Reform

Saul Loeb/AFP/Pool
K Street is divided on President Barack Obama's plan to reform corporate taxes, with some industries wanting to protect their existing tax breaks and others that figure they would be better off with a lower overall rate.

K Street has its sights on the details that were left out, the places where wiggle room could turn into opportunity for its clients. For example, the president’s proposal for a minimum overseas tax rate, an effort to encourage corporations to invest in the United States, gave no specific number.

“Until you run the numbers, you have no idea how each company is going to fare,” said Patrick Heck, co-chairman of the tax policy practice at K&L Gates, who served as a tax counsel on the Senate Finance Committee for seven years, including four years as chief tax counsel.

If anything caught lobbyists by surprise, it was a suggestion to reduce the incentive for corporations to deduct interest payments and to tax “pass-through” corporations at the corporate instead of the individual tax rate, ideas bound to ruffle the feathers of the financial services industry.

As usual, the devil is in the details, explained John Harrington, a tax partner at SNR Denton.

“It depends if you’re going to allow any exceptions,” he said, referring to the pass-through provision. “There are very large family-owned businesses that operate as S corporations — do they get pulled under this as well?”

Many lobbyists who represent industries that have been calling for a lower corporate tax rate reacted more favorably to the president’s outline, if not to all the details.

“For us, this is a very important thing: The president is finally coming out and affirming that yes, the corporate tax rate needs to be lowered,” said Matthew Shay, president and CEO of the National Retail Federation.

Shay added that his organization doesn’t envision corporate tax reform exactly as the president does. For example, the NRF wants to see a rate closer to 25 percent, not Obama’s 28 percent average. But he said Obama’s proposal will help energize the debate, especially given the “significant impediments” of an election year.

“With the right kind of leadership from the business community, it can happen,” Shay said.

But today’s announcement exposed fissures even within industries. The Retail Industry Leaders Association released a statement dinging the administration for preserving “implicit preference for some industries at the expense of others.”

Elaine Kamarck, who co-chairs the Reforming America’s Taxes Equitably coalition, dismissed those conflicts, saying that such fractures did not stop a reform package from passing in the mid-1980s.

“Because this system is so distorted by the loopholes, clearly you’re going to have winners and losers in the community,” Kamarck said. “I think they cancel each other out, and what you have is the essential argument: Broaden the base, lower the rates.”

With momentum for lowering the corporate tax rate building not just among big businesses, but also on Capitol Hill and on the presidential campaign trail, Obama’s blessing was the missing ingredient. Kamarck said a corporate reform package could even get done this year.

“I was around in ’86, and there’s a sort of dance that happens,” Heck said. “Nothing was really going to happen until the president got engaged. ... This is the first time since 1986 that the president is engaged.”

Bruce Thompson, a tax expert with Van Scoyoc Associates, agreed: “His involvement will up the ante for reform.”

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