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Obama's corporate tax revamp plan seen as unlikely to go far

U.S. President Barack Obama pauses while talking to employees after touring the Amazon Fulfillment Center in Chattanooga, Tennessee, July 30
U.S. President Barack Obama pauses while talking to employees after touring the Amazon Fulfillment Center in Chattanooga, Tennessee, July 30

By Kim Dixon

WASHINGTON (Reuters) - President Barack Obama's bid to slash corporate taxes on its face might seem to be a concession to win Republican and business support, but it landed with a thud among those groups and has little chance of becoming law.

Some in Washington said the plan was most likely White House positioning designed to contrast the president's compromising spirit with Republican stubbornness ahead of partisan fiscal fights expected after Labor Day.

One battle will revolve around a September 30 deadline to fund the government and the other around raising the government's borrowing authority, known as the debt ceiling, sometime after October 1.

"We have some really big moments coming up and the question is, who is going to blink on the (budget) and who is going to blink on the debt limit?" said Patrick Griffin, assistant director for the Center for Congressional and Presidential studies at American University, who worked as a legislative aide for Democratic President Bill Clinton and for Senate Democrats in years past.

Obama outlined a familiar set of ideas in his latest economic speech in Tennessee on Tuesday, repeating his backing for cutting the corporate tax rate to 28 percent from 35 percent, and giving manufacturers a preferred 25 percent rate.

White House economic adviser Gene Sperling told reporters it combines measures Republicans have clamored for - namely lower corporate rates - with new spending on politically popular items backed by Democrats, such as infrastructure and education.

Obama's new spending would be funded by one-time revenue boosts from business reforms included in Obama's plan, such as curbing accelerated write-offs of investments, Sperling said.

But Republicans, particularly in the U.S. House of Representatives, are unlikely to back new spending. Indeed, they are preparing for the fall showdowns with demands for more spending cuts.

PLAN LEAVES OUT PASS-THROUGHS

In the business community, there were complaints that Obama's corporate ideas ignore a key issue of how to handle taxation of so-called pass-through businesses. Because of the way they are organized, profits earned by pass-through entities flow through straight to owners, avoiding the corporate tax.

These businesses - ranging from mom-and-pop stores to law firms and hedge funds - would not be affected by Obama's plan because they are subject to individual tax rates, which now top out at 39.6 percent.

Reactions from business people were mixed.

Ian Read, the chief executive of Pfizer, the world's biggest drug company, welcomed a corporate rate cut in an interview with Reuters: "The devil is always in the details on these type of things, but I would welcome a change that allows us to have an effective tax rate that is competitive with most of our competitors outside," he said.

But Chris Whitcomb, tax counsel for the National Federation of Independent Business, a powerful lobbying group in Washington, said the proposal leaves his members out in the cold.

"If you don't address provisions on both sides of the code, you'll create complications," Whitcomb said. "The bottom line is we don't think this is doable."

Tax-writers in the House and Senate are working on comprehensive tax reform that would scrub the code clean of special interest breaks in order to fund lower rates. None back corporate-reform only.

White House adviser Sperling was asked but did not respond to a question on his call with reporters about how pass-through businesses would be treated.

Sperling also said the plan did not include a one-time "repatriation" or tax holiday on foreign earnings, a proposal many Republicans do back.

"It's clever politics. Obama can say he favors tax reform and creating infrastructure jobs, all in one package," said Greg Valliere, who advises investors at Potomac Research in Washington. "This is all about putting Republicans on the defensive, making them look obstructionist."

(Additional reporting by Ransdell Pierson in New York; Editing by Fred Barbash and Claudia Parsons)

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