In Mass., A Wary Response To Tax Proposal

Rate Cut Praised But Other Terms Called ‘Barriers’

By Todd Wallack

Bay State executives had a mixed reaction to President Obama’s proposal to reduce the corporate tax rate from 35 to 28 percent, while eliminating dozens of deductions.

Several Massachusetts business groups applauded the idea of reducing the rate and simplifying the tax code by eliminating a variety of tax breaks and shelters. But others criticized changes they said would make it harder for companies to compete in a global economy.

For instance, the White House proposed creating a minimum tax on foreign income to prevent companies from sheltering money overseas, which could hurt some corporations with profitable operations abroad.

“Raising new tax barriers for American employers that hamper access to and punish success in global markets seems contradictory at best,’’ said Christopher Anderson, president of the Massachusetts High Technology Council, a business group in Waltham.

Treasury Secretary Timothy Geithner, who outlined the proposal in Washington yesterday, said the changes will make the tax code fairer by eliminating billions of dollars in subsidies for selected companies and lowering the overall rate. He said it would also provide increased incentives to encourage investment.

But many political observers say the proposal has little chance of becoming law this year in a deeply divided Congress. Many Republicans are pushing for even steeper cuts in the corporate tax rate.

The US statutory rate of 35 percent is higher than in many other countries, though many companies pay a far lower effective tax rate through careful accounting and by taking advantage of an array of tax credits and deductions.

A spokesman for Associated Industries of Massachusetts, which represents many of the state’s largest employers, called the president’s plan the start of a much-needed effort to revamp the corporate tax code.

“Simplicity is something we would like to have,’’ said Brian R. Gilmore, executive vice president of the group.

But the proposal contains many details that are certain to invite fierce opposition from companies and industry groups. Obama, for example, reiterated his proposal to tax compensation for hedge fund and private equity executives at the same rates that other workers pay – something strongly opposed by these investment firms.

Currently, many hedge fund managers and private equity partners pay lower tax rates on much of their earnings because the profits they receive from deals are treated as long-term capital gains, taxed at 15 percent, rather than ordinary income, which is taxed at rates of up to 35 percent.

Many major hedge fund and private equity firms, such as Bain Capital in Boston, are based in Massachusetts, so the move could have a significant impact on the state.
Bain did not return a call seeking comment.

The proposal could also affect some life insurance companies, such as John Hancock in Boston and MassMutual Financial Group in Springfield, because it would discourage companies from using life insurance policies as a type of tax shelter. MassMutual and John Hancock, a unit of Manulife of Canada, declined to comment.

The White House also proposed changes that could support the region’s growing technology, clean energy, and life sciences industries. Specifically, the Obama administration called for cutting the top tax rate for manufacturers and expanding research and clean energy tax credits.

The proposal also contains provisions to help small businesses, including allowing some to deduct more expenses and use a simpler form of accounting. It would also increase the number of companies that qualify for a tax credit for health insurance.

Still, many business leaders said it is too early to gauge exactly how the plan could affect Massachusetts businesses.

“It will take some time to sift through how each company will fare under this package,’’ said Thomas J. Sommer, president of the Massachusetts Medical Device Industry Council, an industry group in Boston.

One Boston investment executive said the proposal was generally positive because it would provide incentives to US companies to add local jobs. The proposal would give companies tax credits for moving jobs from overseas to the United States, while barring companies from deducting the expense moving jobs offshore.

“It’s a step in the right direction,’’ said John Hailer, chief executive officer of Natixis Global Asset Management’s operations in North America and Asia. “It’s a way to create good behavior.’’

James Brett, chief executive of the New England Council, which represents local companies in Washington, called the idea of reducing the corporate tax rate, a “positive step toward leveling the playing field for American businesses.’’

In addition, Brett said expanding the incentives for manufacturers and research should “go a long way toward promoting growth and job creation in our region.’’

Todd Wallack can be reached at twallack@globe.com. Follow him on Twitter @twallack.