Treasury Secretary Tim Geithner told a Senate panel that the Obama administration plans to introduce a series of proposals to reform the corporate tax laws.

Tim Geithner

Testifying on Tuesday before the Senate Finance Committee to explain President Obama’s fiscal 2013 budget plan, Geithner said the administration would soon release a framework for reforming the corporate tax system.

“This proposal will lower the maximum statutory rate, limit the ability of firms to shift profits to low-tax jurisdictions, eliminate tax expenditures that have no positive spillovers to society as a whole, and bring a sense of permanence to various provisions in the corporate income tax code,” he said in his opening statement. “In short, it will help level the playing field for businesses and allow the government to collect needed revenue while promoting economic growth. The President’s budget proposals, if implemented, would move the existing corporate tax code in the direction of these principles but would not eliminate the need for deeper reforms.”

Geithner also discussed some of the individual tax reforms in President Obama’s budget plan, including the so-called “Buffett Rule,” which would impose at least a 30 percent tax rate on families earning over $1 million (see Obama Proposes Tax Reforms in 2013 Budget).

Other provisions in the budget plan include allowing the 2001 and 2003 tax cuts to expire for taxpayers earning over $250,000 a year, setting a maximum 28 percent rate at which upper-income taxpayers could benefit from itemized deductions and certain other tax preferences to reduce their tax liability; and eliminating the carried interest tax break that allows some private equity firm partners, hedge fund managers, and venture capitalists to pay capital gains tax rates instead of ordinary income tax rates on compensation for their services.

“These steps in the direction of a reformed system would reduce the deficit by about $1.5 trillion over the next 10 years and would set in motion the process of broader reform,” said Geithner.

During the hearing, Senate Finance Committee chairman Max Baucus, D-Mont., underscored the need to provide tax certainty by extending tax provisions that expired at the end of 2011, known as the "traditional extenders." These include deductions for college tuition and for state and local sales taxes and a tax credit for research and development to encourage innovation. He also touched on the need to enact comprehensive tax reform that makes the tax code simpler and fairer and helps American businesses grow, hire and compete in the global economy. Baucus again voiced his support for making the 2001 and 2003 middle-class tax cuts permanent and allow the others to expire at the end of the year.

“This budget takes a step in this direction by making the 2001 and 2003 tax cuts for the middle class permanent, providing permanent estate tax relief and solving the problem of the alternative minimum tax,” he said. “We also need to end the cycle of year-to-year extension and uncertainty for families and businesses, while making the tax code simpler, fairer and more efficient. I look forward to working with my colleagues and the administration to create a better tax system that meets our 21st-century needs.”

Sen. Orrin Hatch, R-Utah, the ranking Republican on the Senate Finance Committee, warned that any budget projections would depend on future interest rates and inflation. “No matter what budget baseline you choose to consider, the [Congressional Budget Office] projects that federal revenues as a share of GDP will rise above the long-run average as the economy recovers, even with a continuation of current tax rates,” he said. “But spending as a share of GDP is projected to indefinitely stay above historic norms, pushing our economy and the size of our government further and further down the path that several major European countries have followed to fiscal ruin.”