State of the Union: Obama Wants to Cut Corporate Taxes, Loopholes

The nation's fiscal problems limit Obama's options. The federal budget deficit reached $1.3 trillion in the budget year that ended in September. The Congressional Budget Office predicted Wednesday that budget deficit will hit almost $1.5 trillion this year. Some economists say Obama should use tax reform to raise taxes, helping to reduce the federal budget deficit.

Obama wants corporate tax reform to be revenue-neutral, meaning the system would, overall, raise about the same amount of money it does today. Different industries, however, could have higher or lower tax bills, depending on whether tax rates are lowered enough to offset lost tax breaks.

Republican leaders in Congress said they are ready to work with Obama to lower corporate tax rates and simplify the tax code, but they will not support an overall increase in taxes.

"The complexity on the business side means that different companies, different industries pay different rates, and I think that calls into question the fundamental fairness of the tax code," said Rep. Dave Camp, R-Mich., chairman of the tax-writing House Ways and Means Committee.

Camp, who would play a big role in any tax reform package in the House, said Congress should work to revamp both the corporate income tax and the individual income tax. He noted that most small business owners pay business taxes through their individual tax returns.

Sen. Orrin Hatch of Utah, the top Republican on the tax-writing Senate Finance Committee, agreed.

"We cannot limit reform to just the corporate side of our tax code," Hatch said. "Instead, we must cast a wide net and examine the entirety of the tax code, which is overly burdensome and complex not only to corporations, but small businesses and families as well."

Obama made only a passing reference in his speech to reforming individual income taxes, saying he would like to join members of Congress in their efforts to simplify the tax code for individuals. Gleckman said Obama would have to take a much more active role in getting any tax reform package through Congress.

"Presidential rhetoric is necessary but not sufficient to get this done," Gleckman said. "He's going to have to come up with a plan."

The business community has been calling for corporate tax reform for years, arguing that federal tax laws are inefficient, hurting their competitiveness. But none are stepping forward to give up the tax breaks that benefit them.

"We welcome the debate on tax reform," said Dorothy Coleman, vice president of tax and domestic economic policy for the National Association of Manufacturers. "The current tax system is a drag on economic growth and investment."