The Obama administration's corporate tax reform plan would end "dozens and dozens" of tax breaks, Treasury Secretary Timothy Geithner said on Tuesday as he defended the White House's election-year call for higher taxes on the wealthy.
Within days, the administration intends to unveil a blueprint aimed at eliminating inequities in the corporate tax system and lowering the top rate.
Companies, which pay wildly different levels of taxes, are clamoring for a cut in the corporate tax rate - which tops out at 35 percent -- but disagree about how to strip out preferences that benefit selected industries.
Geithner spoke before the Senate Finance Committee a day after President Barack Obama unveiled a $3.8 trillion budget-and-tax proposal that called for aggressive government spending to boost the economy and higher taxes on the rich.
"We think they can handle it. We think they can afford it," Geithner said.
Few elements of the budget are expected to win approval this year in a divided U.S. Congress as elections approach in November. Republicans view the budget as a campaign document, and Obama supporters also see it as an important tool for him to communicate his spending priorities to voters.
Republicans criticized Obama's budget, saying it chooses winners and losers and moves away from tax reform.
For example, Obama wants to end a manufacturing tax break for oil and gas companies, but expand it for high-tech companies. "Obviously not everyone is going to be playing by the same set of rules," Republican Senator Jon Kyl of Arizona said.
Geithner said it was a "fair question."
He said the Obama plan would "wipe out a very substantial, dozens and dozens of special tax preferences," in the corporate code, but keep a "very limited" number targeting incentives for "creating and building stuff in the United States."
Republican Representative Dave Camp, the chairman of the U.S. House of Representatives' tax-law writing Ways and Means committee, has set a goal of trimming the top 35 percent corporate rate to 25 percent.
Senators from both parties said Obama needs to use the bully pulpit to push major changes to the tax code.
The last time major rewrite of the U.S. tax code came in 1986 under Republican President Ronald Reagan.
"The key in 1986 was of course the presidential bully pulpit and that the executive branch every single time out talked about how you had to fit the pieces together," Democratic Senator Ron Wyden said.
Obama said earlier he was "hopeful" of a deal on extending a 2 percentage point cut in the payroll tax paid by workers, which will expire at the end of the month without a deal between sparring lawmakers.
FISCAL CLIFF
The payroll tax extension is the first among many deadlines approaching in coming months that could hamper the fragile economic recovery.
At the end of the year, individual tax cuts enacted under President George W. Bush are set to expire. In addition, $1.2 trillion in automatic budget cuts across all government programs are set to kick in as part of last summer's deal to raise the debt ceiling.
"A perfect fiscal storm is waiting at the end of the year," Senator Max Baucus, Democratic chairman of the Senate Finance Committee said.
Geithner agreed that the combination of the deficit reduction measures and higher taxes would hurt the economy.
But he said the administration is proposing to extend the bulk of the tax cuts so that only the wealthiest would be affected. "The impact of that tax reform would be very, very modest," he said.
Geithner rejected Republican suggestions that the administration should make drastic cuts to government spending even though the U.S. deficit has soared to $1.3 trillion and the federal debt has topped $15 trillion.
"That would damage economic growth," Geithner said.
(Reporting By Kim Dixon and; Rachelle Younglai; Editing by Kevin Drawbaugh and Cynthia Osterman)