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UPS, AT&T Lobby Obama for Tax Overhaul Focused on Rate Cuts

Executives from United Parcel Service Inc. (UPS), Altria Group Inc. (MO) and Lockheed Martin Corp. (LMT) are pressing President Barack Obama for a swift reduction in the U.S. corporate tax rate.

The companies, along with AT&T Inc. (T), FedEx Corp. (FDX), Boeing Co. and the Walt Disney Co. (DIS), today announced formation of a group that will push to lower corporate tax rates, which currently top out at 35 percent. In a letter to Obama, the companies said the U.S. tax system puts them at a competitive disadvantage to businesses based in countries with lower rates. They didn’t specify their preferred corporate tax rate.

“In a global economy where capital is highly mobile, it is simply harder to compete from America,” the executives wrote in the letter, which is dated today. “A lower corporate tax rate will boost investment in the U.S., bringing more American jobs, innovation and growth.”

The emphasis on rate cuts reflects the different goals of multinational companies and businesses whose operations are mostly based in the U.S. While most companies support a rate reduction, multinational corporations such as Pfizer Inc. (PFE), Cisco Systems Inc. (CSCO) and Apple Inc. (AAPL) are more focused on a repatriation holiday that would allow them to return about $1 trillion in overseas profits to the U.S. at a rate as low as 5.25 percent.

Elaine Kamarck, a co-chairman of the group and a former adviser to President Bill Clinton, said lowering rates helps all businesses.

‘Treats Everyone Equally’

“The repatriation issues have applied to some companies more than others and we think that by starting a tax reform discussion with a rate discussion is really the way to go,” she said. “That treats everyone equally.”

Jim Pinkerton, a former adviser to Presidents Ronald Reagan and George H.W. Bush, is the other co-chairman.

In a report released Sept. 7, the U.S. Chamber of Commerce -- which counts AT&T, UPS, FedEx and Verizon Communications Inc. (VZ) as members -- maintained that a tax holiday would expand the U.S. economy by as much as 4 percent over two to three years. A study written by Ernst & Young LLP for today’s announcement of the RATE Coalition (short for Reducing America’s Taxes Equitably) said lower permanent rates would encourage repatriation, though it didn’t call for a tax holiday.

“A lower U.S. corporate tax rate would reduce the tax on repatriated earnings of U.S.-headquartered multinational corporations,” the study said.

Territorial Tax System

The Ernst & Young report is also silent on whether the U.S. should move toward a so-called territorial tax system, in which businesses are taxed only on domestically generated income. Multinational companies are pressing for a shift to a territorial system, and the Chamber’s study encouraged lawmakers to approve a repatriation holiday with “the ultimate goal of moving toward a territorial system of taxation.”

Treasury Secretary Timothy Geithner said yesterday that the administration will release proposals for a corporate tax overhaul “before the end of the year.”

“We will lay out a set of broad proposals on corporate tax reform that meet this test of making us more competitive as a country, strengthening incentives for investing in the United States,” he told reporters.

To contact the reporter on this story: Steven Sloan in Washington at ssloan7@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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