Obama Proposes Big Change to Corporate Tax Structure

President Obama on Monday proposed eliminating corporate interest deductions in exchange for a lower top tax rate as part of a tax code overhaul that would mark a huge change in the way most corporations calculate their tax obligation.

Speaking to the U.S. Chamber of Commerce, the president said he wants to even out the tax code to enable the administration to reduce the top corporate tax rate from 35 to 28 percent. But he repeated his position that any reduction in the top rate must be revenue neutral.

"You know how it goes: because of various loopholes and carve-outs that have built up over the years, some industries pay an average rate that is four or five times higher than others. Companies are taxed heavily for making investments with equity; yet the tax code actually pays companies to invest using leverage," the president told the audience of business leaders.

"As a result, too many businesses end up making decisions based on what their tax director says instead of what their engineer designs or what their factory produces. This puts our entire economy at a disadvantage. That's why I want to lower the corporate rate and eliminate these loopholes to pay for it, so that it doesn't add a dime to our deficit. And I am asking for your help in this fight," he said.

The corporate tax rate range from 15 to 35 percent of taxable income, with companies earning between $335,000 and $10 million paying a flat rate of 34 percent, and everything over $18.3 million being taxed at the top rate of 35 percent. Companies taxed at lower than 28 percent would not be affected by a reduction in the top rate.

A senior administration official confirmed to Fox Business Network that reducing or even eliminating the corporate deduction for interest payments on debt is "one of the options" under discussion with the business community for reducing the top corporate rate.

"Everything is on the table," the official said. "That doesn't mean we're going to do it … (but) that's one of the options."

The official added that reducing the research and development tax credit and the credit against U.S. taxes that companies get for payments of foreign taxes are also in the mix.

All of these were discussed in a meeting last week between administration officials and representatives of the Business Roundtable, the official said.

Fox Business Network's Peter Barnes contributed to this report.