The top executive of Procter & Gamble Co took the business case for lower taxes to U.S. lawmakers on Thursday, although political leaders see a long road ahead to the tax rewrite that could cut the rate.

Multinational companies say the top 35 percent corporate tax rate hamstrings them against foreign-based rivals, most of which are subject to far lower rates.

Most lawmakers agree, but unity ends when debate turns to how to offset the tens of billions in annual revenue the government would lose as part of a rate cut.

We have loaded the tax code with a dizzying array of credits, deductions, exclusions and exemptions, Representative Dave Camp, the Republican who chairs the House of Representatives Ways and Means Committee, said at his first meeting as the panel's chairman. I'm under no illusion that the task before us will be easy.

Camp held up a slim pamphlet -- the U.S. tax code in 1913 -- and contrasted it with two stacks of fat volumes that it consists of today.

The hearing, the first in a series expected in Congress this year on simplifying the U.S. tax code, focused mostly on the corporate rate.

American companies seeking to expand in markets at home and abroad are working with one of the least competitive tax systems among developed countries, Procter & Gamble Chief Executive Robert McDonald told the tax-writing lawmakers.

McDonald spoke on behalf of the Business Roundtable, a lobbying group for big corporations.

It took several years to lock in the deal that led to the last major tax reform act, brokered in 1986 between then-President Ronald Reagan, a Republican, and a Democratic-led House.

PROFIT SHIFTING

Martin Sullivan, a former Treasury Department adviser testifying for the Democrats, said the tax code hit companies in vastly different ways because of the slew of specialized deductions and credits.

For example, General Electric Co paid an average tax rate of just 3.6 percent over the past three years, compared with nearly 39 percent for CVS Caremark Corp, according to research by Sullivan.

The code's long list of subsidies and handouts defies any notion of a free market, Sullivan said.

The companies with the lowest rates are in large part pharmaceutical and technology companies able to shift investment to lower-tax countries.

GE, which was not available for comment, has noted that losses at its GE Capital unit have accounted for its low rate.

President Barack Obama, a Democrat whose first two budgets proposed raising tens of billions of dollars by closing what he called tax loopholes abused by big companies, has made efforts recently to court U.S. business.

Obama has said in recent weeks he wants a rewrite of the tax code and started a debate on the corporate tax rate.

That discussion began in earnest when Treasury Secretary Timothy Geithner met chief financial officers from big corporations such as General Electric and Microsoft Corp last week.

THE HARD PART

Republicans and Democrats agree the top corporate rate may hurt U.S. competitiveness, but Democrats want the myriad of deductions and credits in the code -- many of which they dub as loopholes -- trimmed to fund any overall corporate tax cut.

Democratic Representative Richard Neal pressed conservative economist Kevin Hassett on whether he agreed with Republican arguments that tax cuts fund themselves with boosted economic growth.

To think that tax cuts pay for themselves except in very extraordinary circumstances is wishful thinking, Hassett said.

Among the biggest tax provisions used by corporations are those allowing them to write off investments quicker and credits for research and development.

Republicans for their part have been mum on what provisions could be trimmed to simplify the code and cut the rate.

P&G's McDonald argued against an overhaul being revenue neutral, code for ensuring any overhaul not cost money.

That is likely to face resistance, though, especially in times of a near $14 trillion federal debt.

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