Geithner: Obama seeks 28 percent corp. tax rate

WASHINGTON — Treasury Secretary Timothy Geithner said Wednesday the current U.S. business tax system is bad for business and for job-creation and argued that President Barack Obama's plan to reduce corporate tax rates to 28 percent would make the tax system more globally competitive.

The Obama administration is proposing to lower the corporate tax rate from the current 35 percent, the highest in the world after Japan. Manufacturers would receive incentives so that their effective tax rate could be even lower.

In turn, corporations would have to give up dozens of loopholes and subsidies that they now enjoy. Corporations with overseas operations would also face an unspecified minimum tax on their foreign earnings.

The proposal outlined by Geithner would also eliminate tax loopholes and subsidies that Geithner called "fundamentally unfair."

Obama also would set a minimum tax on the foreign earning of U.S. companies.

"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," Geithner said.

Chances of accomplishing such change in the tax system are slim in a year dominated mostly with presidential and congressional elections. But for Obama, the proposal is part of a larger tax plan that is central to his re-election strategy.

Geithner acknowledged that the debate "will be politically contentious."

"Some will say these proposals are too tough on business, and others will say that they're not tough enough," he said.

Obama's plan would be part of a larger effort to overhaul the U.S. tax system and it dovetails with Obama's call for raising taxes on millionaires and maintaining current rates on individuals making $200,000 or less.

While the 35 percent nominal corporate tax rate ranks among the highest, deductions, credits and exemptions allow many corporations to pay taxes at a much lower rate.

Under the framework proposed by the administration, the rate cuts, closed loopholes and the minimum tax on overseas earning would result in no increase to the deficit.