Treasury explores revamp of business tax

Replacing the business income tax with a tax based on gross receipts from sales would expand the economy by between 2% and 2.5%, according to a Department of the Treasury study. A gross-receipts tax would be more effective in encouraging growth than lowering the current top federal rate of 35% to 28%, according to the treasury. The study, released by Treasury today, did not make any recommendations, but instead laid out several alternatives for changing the U.S. business tax system to improve U.S. competitiveness. “The world economy has changed dramatically over the past half century and so too has the U.S. role in that economy,” Treasury assistant secretary Eric Solomon said in a press release. Major U.S. trading partners have changed or plan to modify their business tax systems to improve their competitiveness, Mr. Solomon said. “The current U.S. system is far from optimal, and we cannot afford to be left behind.” Areas of concern identified by the Treasury study include multiple taxation of corporate profits, a bias in the U.S. tax system that favors debt financing, taxation of international income, treatment of losses, and book-tax conformity. House Ways and Means Committee Chairman Charles Rangel, D-N.Y., released his own statement on the report, predicting that Congress and the administration “can reach some type of agreement on this critical issue.” Earlier this year Mr. Rangel introduced a tax reform package that would reduce the corporate tax rate to 30.5%.