President Obama told top business executives Wednesday that there was "definitely a deal to be done" on corporate taxes with congressional Republicans, but work needs to begin soon before a limited window closes as the 2106 presidential election approaches.
Obama expressed "cautious optimism" because there is general agreement among many Democrats and Republicans on the need to eliminate some business tax breaks and to lower the 35% corporate tax rate, which is the highest among advanced economies.
"The good news, despite the fact that obviously the midterm elections did not turn out exactly as I had hoped, is that there remain enormous areas of potential bipartisan action and progress," Obama told the Business Roundtable trade group.
"There is definitely a deal to be done," he said.
Obama predicted it would take six to nine months to solidify a corporate tax proposal with Congress so he wants to start the process early next year.
"I think the time is right," he said. But with another presidential election in less than two years, "the window is not going to be open too wide."
Obama cited "two big hurdles" to striking a deal.
He told the executives they'll have to be willing to give up some tax breaks. And Obama said the desires of some Republicans to try to overhaul the individual tax code at the same time could make it harder to strike a deal.
"My view is, is that if we start with the corporate side, it’s a more discrete problem, fewer variables, fewer moving parts," Obama said.
"We may be able to get that done, and then we can potentially have a conversation about broader tax reform," he said. "That may not be how the Republicans view the situation. And that could end up being a hang-up."
Another issue is the problem of some expiring tax breaks.
The House on Wednesday is expected to approve a one-year extension of a host of tax breaks worth about $45 billion a year after bipartisan efforts on a longer-term extension fell apart less than a month before a Dec. 31 deadline.
Most of the breaks are for businesses, including a crucial one for research and development expenses.
The Senate is expected to follow suit in the coming days so companies and individuals can deduct the expenses on their 2014 taxes.
Businesses are disappointed with the short-term extension, which technically is only until the end of this year. The breaks expired on Dec. 31, 2013.
Congress will take another shot at a longer-term extension next year with Republicans holding a stronger hand after winning control of the Senate and adding to their House majority in the mid-term elections.
Obama said he'd like to include discussions about some of those tax breaks, particularly the research and development credit, as part of a broader comprehensive tax overhaul.
But he said that longer extensions of tax breaks for working families, like the earned income tax credit, would have to be included in a broader tax overhaul as well.
"So there are going to be some working-class and middle-class working family provisions that have to be incorporated if we are to extend some of these other tax deductions and tax breaks as well," Obama said.
Obama acknowledged the Republican anger over his recent executive action on immigration. But he said that shouldn't mean the parties can't work together on corporate taxes and other issues, such as avoiding another government shutdown.
"We have to be able to disagree on some things while going ahead and managing the people’s business and working on the things where we do agree," he said.
"Democracy is messy, but it doesn’t have to be chaos," Obama said.
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