Winners and Losers in President’s Corporate Tax Reform

The White House has a new plan to lower corporate tax rates to 28% from 35% by wiping out loopholes, taking a page once again out of the Ronald Reagan playbook, and stealing thunder from GOP presidential contender Mitt Romney, who also wants a lower, 25% corporate rate and fewer breaks.

But for investors, which industries would win or lose with a lower, flatter corporate tax structure?

Hint: Hats and horns for utilities, auto manufacturers and truckers — manufacturers could be looking at a 25% rate.

But don’t celebrate for Internet, drug and biotech companies.

President Barack Obama already said in last year’s 2011 State of the Union address that he'd like to lower the tax rate corporations pay. And now the expectation is the president plans to do just that, paying for it by wiping out dozens of corporate tax breaks.

The president last year asked “Democrats and Republicans to simplify the system. Get rid of the loopholes. Level the playing field.”

If the president succeeds, it would be the first time in 25 years the corporate tax code would be reformed.

“A parade of lobbyists has rigged the tax code to benefit particular companies and industries,” the president said last year. “Those with accountants or lawyers to work the system can end up paying no taxes at all. But all the rest are hit with one of the highest corporate tax rates in the world. It makes no sense, and it has to change.”

In his second term, President Reagan was briefed by staffers that big corporations, including General Electric (NYSE:GE), where the president once worked, were using loopholes to zap their federal tax bills.

According to the memoir of his Treasury secretary at the time, Donald T. Regan, the president said: “I didn’t realize things had gotten that far out of line.”

And so the 1986 tax reform law sought to raise corporate tax receipts by $120 billion over five years by shutting those loopholes, amounting to roughly $300 billion for that five-year period. Under President Reagan, the corporate tax rate was cut to 34% to 35% from a stiff 46%.

“Flatter rates will mean more reward for that extra effort, and vanishing loopholes and a minimum tax will mean that everybody and every corporation pay their fair share,” President Reagan had said during the signing ceremony for his tax reform.

Analysis of 2009 corporate tax data by New York University, reprinted in the New York Times,shows that, the higher an industry’s effective tax rate, the more the industry would likely benefit from lowering and flattening the corporate tax rate, notes FOX News analyst James Farrell.

On the flip side, the lower the effective tax rate, the more companies benefit from deductions, or “loopholes” -- and the more that industry would be harmed by a flatter corporate tax code with less loopholes, Farrell says: