The top executive of Procter & Gamble took corporate America's case for a lower tax rate to U.S. lawmakers on Thursday, and also called for an end to taxation of foreign-earned profits.

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.

The House of Representatives Ways and Means Committee hearing, the first in a series expected in Congress this year on simplifying the U.S. tax code, gives companies a chance to press their case.

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 lawmakers.

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

Representative Dave Camp, the Republican who chairs the committee, 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.

I'm under no illusion that the task before us will be easy, Camp said at his first meeting as the panel's chairman.

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.


Martin Sullivan, a former Treasury Department adviser testifying for the Democrats, said the tax code affected different 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.

GE, which was not available for immediate comment, has noted that losses at its GE Capital unit have accounted for its low tax 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 in recent weeks has said 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 with chief financial officers from big corporations like General Electric and Microsoft Corp last week.

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.

U.S. Taxpayer Advocate Nina Olson, a watchdog within the Internal Revenue Service, told the panel that the dirty little secret is that the tax breaks needing trimming to simplify the code generally benefit the masses.

We are the special interests, Olson said.

(Reporting by Kim Dixon; Editing by Tim Dobbyn and Lisa Von Ahn)