One of the biggest applause lines in the President’s State of the Union speech came from his promise to reform and simplify the corporate income tax: So tonight, I’m asking Democrats and Republicans to simplify the system.  Get rid of the loopholes.  Level the playing field.  And use the savings to lower the corporate tax rate for the first time in 25 years –- without adding to our deficit.  It can be done.  That sounds straightforward.   We did this, after all, in 1986.  Congress lowered the top corporate tax rate from 46 percent to 34 percent (since raised to 35 percent), while closing many business tax preferences and raising more corporate revenue.  What are the chances that we can do this again? To get a rough idea, I added up the cost of business tax expenditures reported in last year’s budget.  In all, they total about $640 billion between 2011 and 2015.  About $506 billion of these losses (just under 80 percent) come from corporate taxpayers.  Businesses organized as “flow-through enterprises”(S corporations, partnerships, sole proprietors) benefit from many of the same provisions as taxpaying corporations. Their owners would also pay more tax if we eliminate business tax preferences.  So, any revenue-neutral combination of lower corporate rates and reduced business tax preferences would lower corporate tax receipts and increase individual tax receipts. Over the 5-year period, estimated business tax expenditures add up to about a third of projected corporate receipts.  If wiping them all out permitted proportionately lower rates, the top corporate rate could fall to 23 percent without any loss in overall revenue.  But the actual potential rate cut would be different because of interactions among the various tax expenditures, interactions between the corporate tax rate and some tax expenditures, and behavioral responses.   For one thing, the revenue gain from closing corporate preferences would be smaller at a lower corporate tax rate. Now, look closer at these tax expenditures.  It turns out that the ten most costly provisions benefiting business investment account for about 92 percent of the five-year revenue losses.  How likely is it that these costly provisions would be repealed? The largest estimated loss ($169 billion) over five years comes from deferral of foreign source income of U.S. multinationals.  In the past, the revenue gain from eliminating deferral has been estimated as much smaller than the ongoing revenue cost under current law.  And the corporate leaders now advising the President are likely pushing him to move in the opposite direction, following our major trading partners, who exempt foreign-source income.   The second largest, accelerated depreciation of machinery and equipment, costs an estimated $147 billion.  But this tax expenditure, which broadly subsidizes domestic investment for a wide range of business firms, has just been increased, with the support of the Administration, by allowing full expensing for investments made in 2011.  The President has endorsed making the research credit permanent (scored at $13 billion over 5 years last year, but since increased because Congress extended it) and no one would even consider eliminating expensing of research and experimentation activities ($32 billion over 5 years).  Other items among the ten costliest provisions that seem unlikely to get chopped include the credit for low-income housing ($36 billion), accelerated depreciation on rental housing ($41 billion), and exclusion of interest on hospital construction bonds ($21 billion).  Adding up all these items reduces the potential saving from $640 billion over 5 years to just $180 billion, or less than 10 percent of 5-year corporate revenues.  And even getting this far would require eliminating alcohol fuel credits –think, Iowa primary --($32 billion), the deduction for domestic production activities ($77 billion), preferential tax rates for small corporations ($16 billion), and all tax incentives for renewable energy ($26 billion, excluding alcohol fuels).    The only tax breaks the President proposed removing in his speech were tax breaks for fossil fuels – a mere $14 billion over 5 years. Enforcing a corporate tax is no doubt challenging in a global economy, where corporations can shift profits to low-tax jurisdictions.  And many companies have legally escaped most of the corporate tax.    The Administration may have new ideas on how to limit avoidance or to increase corporate receipts in ways their official tax expenditure list doesn’t show (such as revising inventory rules or limiting interest deductions).  If it comes up with other good ideas, or proposes some of the items I dismissed as long shots, I would be pleasantly surprised.  But, to paraphrase Willie Sutton, if we are going to broaden the corporate tax base enough to pay for a meaningful rate cut, we need to go where the money is.   And from what I have seen so far, we aren’t there yet.