Democrats plan to use their control of the House to argue for raising the corporate tax rate by a few percentage points -- a long-shot change that, if enacted, could cause the Republican-championed tax cut to unravel.For now, the effort is a political talking point, as Democrats look to set the agenda for the 2020 elections and galvanize voters by pushing for middle-class relief. Increasing the corporate rate is likely to be a nonstarter in the Senate, as long as Republicans control the chamber. They’ve cited the new corporate rate as integral to the tax law and responsible for the improved economy.
But if the move were to happen eventually, it could undermine the foundation of President Donald Trump’s signature legislative achievement. One of the key features of the overhaul was slashing the corporate rate to 21 percent -- a level chosen because it’s below many foreign competitors’ rates, which are in the mid-20s.
Trump and Republican leaders have promised that their changes to the corporate tax code would spur job creation and economic growth, and prevent U.S. companies from moving their income and tax liabilities to lower tax countries.
Increasing the rate to, say, 25 or 28 percent, would incentivize companies to keep shifting their income offshore and engage in “tax games,” said Mark Prater, former chief tax counsel for the Senate Finance Committee and one of the main architects of the 2017 law. Since last week’s midterm elections, top House Democrats have been tight-lipped about exactly how high they’d like to set the rate.
A corporate rate hike would also bring the levy closer to what pass-through entities such as partnerships and LLCs effectively pay -- and that could cause corporations to reconsider their structure since they face two layers of tax. Private equity firms KKR & Co. and Ares Management LP have already switched to corporations from partnerships to take advantage of the low corporate rate.
“There is a delicate relationship between all of these features,” said Prater, who’s a managing director at accounting firm PwC. “The corporate rate doesn’t make up that big of a chunk of the U.S. tax system, but it has pretty significant consequences on the rest of it.”
‘Some Adjustments’
House Democrats have said they plan on using their new majority to hold hearings about the Republican tax overhaul, arguing it’s a giveaway to corporations and the wealthy. Increasing the corporate rate by a few notches is one of the easiest ways to raise hundreds of billions of dollars in one shot.
Representative Richard Neal of Massachusetts, the Democrat poised to be chairman of the House Ways and Means Committee, didn’t respond to a request for comment. Representative John Delaney, a Maryland Democrat who has announced he’s running for president in 2020, is pushing a plan to increase the corporate rate to 23 percent to pay for infrastructure.
Trump, who said during last year’s tax debate that he wouldn’t budge on a corporate rate above 20 percent, signaled during a press conference last week that he would be open to working with Democrats on a middle-class tax cut that was offset by “some adjustments” to other rates. When asked if that could include a corporate rate increase, Trump said “Yeah.”
“It’s not a tough political call to say, ‘let’s raise taxes on corporations’,” said Douglas Holtz-Eakin, president of the right-leaning American Action Forum.
In the Senate, Democrats have also talked about adjusting the corporate rate. An infrastructure plan released earlier this year by Senate Democrats calls for raising the corporate rate to 25 percent and the top individual rate to 39.6 percent from 37 percent. Senator Kamala Harris, a California Democrat regarded as a possible 2020 candidate, also has a plan to direct tax benefits to workers by repealing parts of the GOP tax law.
Corporate America would fight the change, saying they’ve made long-term investment decisions based on a 21 percent rate. Lobbying groups including the RATE Coalition, which pushed for a low corporate rate, put out a statement after the midterm elections saying it would “work tirelessly” to maintain the current rate.
Anti-tax advocate Grover Norquist has also gotten almost all GOP members of Congress to sign a pledge against raising taxes that could come back to haunt them if they were to support the corporate change.
Expanded Child Credit
Still, two Senate Republicans proposed a small corporate rate increase to offset individual tax benefits during the tax debate. Republican Senators Marco Rubio of Florida and Mike Lee of Utah pushed to increase the corporate tax rate to pay for a more generous child tax credit. Senator Susan Collins, a Maine Republican, has also said she would support a slightly higher corporate rate to fund tax benefits for individuals.
Lee still supports a slight increase to the corporate rate to pay for an expanded child credit, spokesman Conn Carroll said. Spokeswomen for Rubio and Collins didn’t respond to requests to comment.
More at: https://www.yahoo.com/news/tax-overh...jtc_news_index
Isn't it great having Demoncrats run the House?
Mike Lee of Utah pushed to increase the corporate tax rate to pay for a more generous child tax credit
What is Lee thinking?
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