Disagreements over the top tax rate on individuals has doomed the push for business tax reform, an economic adviser to President Obama said Tuesday.
“The big hang-up was the question of whether the individual rate needed to be cut in conjunction” with cutting business tax rates, Jason Furman said of the push for business tax reform over the past year.
The White House’s disagreement with Republicans over the top tax rate on individual incomes, Furman implied, was likely to stall business tax reform during the last year of Obama’s tenure.
Those comments will dampen the expectations that the election of Paul Ryan, formerly the head of the House tax-writing committee, to House speaker could rekindle talks on business tax reform that died out earlier this year.
Taking questions at an event at the Brookings Institution in Washington, the chairman of Obama’s Council of Economic Advisers said the White House made progress with congressional Republicans in high-level discussions about cutting the U.S. corporate tax rate, which at 35 percent is the highest among advanced economies. They also discussed reforming the unusual U.S. system of taxing corporate profits overseas, as well as creating new tax breaks for small businesses that file using the individual side of the tax code with its higher statutory 39.6 percent top rate.
But there was an “impasse” over whether to lower individual rates, which some Republicans argued was necessary to maintain the competitiveness of large businesses that filed through the individual side of the code.
To cut the top individual tax rate as Republicans want is impossible without tilting the tax code in favor of the rich, Furman said at Tuesday’s event.
He also suggested that cutting the tax rates of businesses that filed as individuals would work against the purpose of tax reform. Furman cited Congressional Budget Office statistics indicating that the owners of those companies, known as “pass-throughs,” pay lower effective tax rates than do the owners of companies arranged as corporations, even though pass-throughs have lower rates on paper.
“If you try to lower everyone together, you’ve undone the whole point of tax reform,” Furman said.
