President Obama Urges Tax Reform in State of the Union

January 26, 2011

In his State of the Union address last night, President Obama called both for reforming the corporate and individual income tax codes. On the corporate income tax:

But to help our companies compete, we also have to knock down barriers that stand in the way of their success.

For example, over the years, a parade of lobbyists has rigged the tax code to benefit particular companies and industries. Those with accountants or lawyers to work the system can end up paying no taxes at all. But all the rest are hit with one of the highest corporate tax rates in the world. It makes no sense, and it has to change.

So tonight, I’m asking Democrats and Republicans to simplify the system. Get rid of the loopholes. Level the playing field. And use the savings to lower the corporate tax rate for the first time in 25 years –- without adding to our deficit. It can be done.

The Administration has been hinting that they are interested in reducing the corporate income tax, although the Washington rumors were that it was more of a 2012 or 2013 thing. Such a prominent reference in this year's annual message might have been instigated by news that Japan will be lowering its corporate income tax rate later this year, making the U.S. the highest corporate income tax rate in the industrialized world. (See the photo of a world corporate tax rate chart, prominently on the White House's State of the Union webpage.)

The real question now is how to do it right. More on corporate income taxes here.

On the individual code:

In fact, the best thing we could do on taxes for all Americans is to simplify the individual tax code. This will be a tough job, but members of both parties have expressed an interest in doing this, and I am prepared to join them.

National Taxpayer Advocate Nina Olsen recently described some of the major problems with the individual code. Read our posts here and here.

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