Richard Rubin and Julianna Goldman Washington

President Barack Obama’s administration would propose reducing the US corporate tax rate to 28 percent from 35 percent while removing tax breaks for companies to help offset lost revenue, an administration official said yesterday.

The plan, due to be tabled later yesterday, would eliminate dozens of tax breaks and reshape the manufacturing deduction to reduce the tax rate on manufacturing to 25 percent, said the official, who spoke anonymously before the proposal was released. The new tax code would still include incentives for research and development and renewable energy.

Obama and Treasury Secretary Timothy Geithner have said corporate taxation was an issue that could provide an area for agreement with congressional Republicans and business groups.

“There is, I hope, more room for common ground on this, and we need to use this opportunity now to start to lay the foundation for the fundamental change ahead,” Geithner told the House ways and means committee last week.

The plan may face opposition from Republicans who want net tax cuts, corporations who say the rate reduction should be deeper and companies that would lose tax breaks they now enjoy.

Business groups, including the US Chamber of Commerce, have spent the past three years criticising the administration’s approach to international taxation, which has focused on making it harder for companies to defer US taxes on income earned outside the country.

“Countries around the world are promoting the international competitiveness of their companies and creating jobs by adopting modern tax laws that enhance the ability of their locally headquartered companies to serve foreign markets,” a coalition of business groups wrote in a letter to Obama this month.

They expressed concern Obama favoured proposals that “would go in exactly the opposite direction”, raising taxes on US companies with overseas operations.

Geithner said the administration would propose retaining tax breaks that directly supported US investment at home. – Bloomberg