Camp entered the fiscal cliff negotiations with the president aiming to get his commitment to a tax package that goes beyond raising rates and revenue.
One drawback of paying for a lower corporate tax rate by broadening the corporate tax base is that it could have a negative effect on businesses that don’t pay the corporate tax but instead have their profits taxed as the personal income of their owners. Republican lawmakers frequently cite this problem, using it to make the case that the top individual income tax rate should also come down below 30 percent.
Particularly after his re-election, there is almost no chance that Obama would embrace such a policy, even if he does accept some rate reduction next year as part of a full-scale rewrite. Instead, his corporate tax blueprint would attempt to compensate small businesses for any damage done to them by handing them other perks, such as the ability to fully deduct more of their assets in the year that they are purchased.
Beneath the political rhetoric going at full-volume at the moment are the many other tricky policy questions that Republicans and Democrats would have to resolve if they are serious about working together on an overhaul.
On the business side, one of the biggest questions is how to treat the foreign income of multinational businesses.
In broad terms, Republicans support a move to a “territorial” tax system which would tax “active income” earned by businesses overseas at a much lower rate. Obama has proposed taxing offshore profits at an unspecified minimum rate.
Officially, the administration opposes a territorial system. However, Treasury Secretary Timothy F. Geithner has said the policy is worth exploring.
For that reason, and because Republicans have been open to some administration ideas about cracking down on offshore tax avoidance, some tax experts argue the two sides might have more in common than is generally assumed.
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