The Obama administration will propose reducing the corporate tax rate by 7 percent on Wednesday, a cut he intends to pay for by eliminating dozens of tax loopholes companies now use to lower their taxes, a senior administration official said.

The centerpiece of the president’s tax overhaul plan would reduce the corporate tax rate from 35 percent, which is among the highest in the industrialized world, to 28 percent.

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While the cut will appeal to businesses that have griped that the current corporate tax rate puts them at a competitive disadvantage, the controversy no doubt lies in what “loopholes” officials will try to cut. Few corporations actually pay the 35 percent rate because of assorted loopholes that make their effective tax rates lower.

Over a year in the making, the plan is Obama’s first official foray into overhauling the tax code, though the chances of a deeply divided congress revamping the tax system in an election year are scarce.

An administration official said the plan will not “add a dime to the deficit,” which means some companies will benefit from the changes, while others will find themselves paying for them.

Administration officials told reporters on Tuesday that the Treasury Department would on Wednesday put out a corporate tax reform plan. Treasury Secretary Timothy Geithner told a Senate committee last week that “dozens and dozens” of tax loopholes were being targeted for closure, though incentives for “creating and building stuff in the United States” would remain.

“Everyone agrees on the basic principle of lowering rates in exchange for eliminating loopholes,” said Dean Baker, co-director of the Center for Economic and Policy Research. However, it’s unlikely Congress will make a decision before the November elections, and for now, tax proposals will largely amount to political messaging.

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To contact the reporter on this story: Emily Knapp at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com

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