The Obama administration shifted focus Wednesday to its case for business tax reform, in a striking departure from the populist rhetoric the president used just hours before in his State of the Union address.
Treasury Secretary Jack Lew stressed that Democrats and Republicans had similar goals when it came to streamlining the tax system for U.S. businesses — bringing down the top 35-percent rate for corporations, and cleaning incentives out of the code.
{mosads}His speech came after President Obama and his administration talked up proposals to raise taxes on the wealthy and the nation’s largest banks for days, culminating in Obama’s Tuesday night’s speech to the nation.
Those proposals are non-starters for Republicans, leading Lew to suggest Wednesday that the two parties put aside what he acknowledged were deep fundamental differences and concentrate on business reform.
“I don’t think that there’s any advantage in pretending that there aren’t big disagreements on the individual tax side,” Lew maintained Wednesday.
But he also insisted that “there is a growing bipartisan consensus in Washington on how to achieve business tax reform, and we have a unique opportunity now to get this done.”
Both the White House and senior Republicans have pointed to revamping the business tax code as one of the few feasible ways to bring in a major influx of cash for the nation’s crumbling infrastructure, by bringing in revenue on profits that U.S. companies have offshore, and as a way to help boost middle-class incomes.
But Lew’s quick pivot back to business tax reform also left some Republicans scratching their head, and believing Obama’s Tuesday focus on raising taxes for the wealthy to pay for middle-class priorities was meant to give Democrats a political boost ahead of 2016.
“That’s very bizarre,” said Rep. Pat Tiberi (R-Ohio), a senior member of the House Ways and Means Committee. “There are so many contradictions with this administration.”
But House Ways and Means Chairman Paul Ryan (R-Wis.) was more optimistic on Wednesday, also talking up areas of agreement between the two sides on taxes and saying he thought Obama had dialed back the partisanship in his State of the Union.
Brendan Buck, Ryan’s spokesman, was more measured in discussing Lew’s pitch for business reform.
“There’s no doubt the president has proposed a lot of bad ideas, but the chairman is going to engage the administration to see if there is common ground to be had,” Buck said in a statement.
In his speech Wednesday, Lew cited the administration’s desire to get the top corporate rate down to 28 percent, with manufacturers getting a 25 percent rate. Congressional Republicans are themselves seeking a 25 percent corporate rate, and Lew noted that both parties want to overhaul an international system that only taxes multinationals on offshore profits when the money is brought back to the U.S.
But even with that overlap, the Treasury secretary also laid out some of the challenges that have led to the U.S. last overhauling its tax code in 1986.
For starters, Lew noted that business interests, while loudly calling for a lower tax rate, would fight to keep tax breaks that help their own industries in any tax reform negotiations. And while some Republicans are warming to the idea of pairing infrastructure and tax reform, GOP lawmakers also blasted the idea when the administration first floated that sort of plan more than a year ago.
But perhaps an even larger obstacle is the taxes paid by smaller businesses, and some large ones, that pay taxes through the individual tax system.
Both Lew and senior congressional Democrats have no interest in lowering the top individual rate, which was raised to almost 40 percent shortly after Obama captured a second term.
“We had a national debate just two years ago about the top rate,” Lew said Wednesday. “We’re not looking at a kind of negotiation to go back to lower the top rate.”
But that’s likely a tough sell for both Republicans and the so-called pass-through companies.
Business groups including the National Federation of Independent Business say they’d especially oppose a measure that would greatly increase the disparity between the rate paid by corporations and pass-throughs, though some Republicans say it’s too early to get into specifics.
“I think Republicans are united in wanting to make sure that small businesses are part of any sort of comprehensive tax reform for the business community,” Tiberi said.
Instead of a rate cut, the Obama administration wants to bolster incentives allowing small businesses to write off investments. Lew told officials from small business groups at a meeting last week that the administration wouldn’t revamp the tax system for corporations on the backs of mom-and-pop companies.
But that hasn’t assuaged the concerns of Dan Danner, NFIB’s chief executive, who said he thinks the administration and even some Republicans are attracted to “the golden carrot” of using tax reform to help pay for roads.
“I still believe that we’re the afterthought in their thoughts about tax reform,” Danner said following last week’s meeting. ““I heard the same we love you, but I didn’t hear what that means with regards to a policy that makes sense.”