U.S. corporate tax rate at 28% seen as likely
Cut below that ‘a pipe dream,’ critic says
NEW YORK • U. S. President Donald Trump has promised the largest tax cut in history, but for scores of the biggest U.S. corporations, it might be just a tax nick.
Constrained by congressional rules, political concerns and simple arithmetic, Republican leaders in Washington have yet to announce any consensus on how to finance the deep corporate tax cut they want, beyond vague plans to close off businessrelated loopholes.
But making comparatively narrow changes to the tax code won’t put much of a dent in the 35- per- cent corporate rate, taking it only as low as 28 per cent or so, according to three tax experts who’ve run the numbers. That’s almost double the 15- per- cent rate Trump has proposed and well above the 20- per- cent that House Speaker Paul Ryan has suggested.
Trump’s White House has promised an agreed- upon plan by early September. But with no details emerging from weekly, closed-door tax meetings between his advisers and congressional leaders, tax professionals and policy analysts have begun to f ear that a shallower cut is the most likely outcome. That would jeopardize Trump’s goal of spurring job creation and economic growth, and do little to pre- vent U. S. firms from shifting their income and tax liabilities offshore to lower- tax countries, economists say.
The rates that Trump and Ryan want are “almost certainly a pipe dream,” said David Rosenbloom, an international tax lawyer at Caplin & Drysdale who served in the U. S. Treasury Department from 1978 to 1981. “They don’t know how to pay for a cut of that magnitude.”
Both men have pitched their rate-cut plans as a way to spur hiring and economic growth. But setting a 28-percent tax rate would be largel y meaningless for more than 150 of the largest U. S. companies, which already paid lower rates than that from 2008 through 2015, according to a recent study.
The companies took advantage of features of the tax code that allow for aggressive tax avoidance as well as tax “subsidies,” according to a March, 2017, report by the Institute on Taxation and Economic Policy, which gathered data from public disclosures. If Congress does close loopholes to pay for a lower rate, many such breaks would disappear.
“These corporate tax rate cuts appeal to the business community in the abstract, but when you talk about what tax subsidies have to be given up, that changes very quickly,” said Chuck Marr, director of federal tax policy at the Center on Budget and Policy Priorities in Washington.
To be sure, potential revenue- raisers could make their way into final legislation — helping to pay for steeper cuts. Ryan’s controversial border- adjustment concept and his proposal to end the deductibility of corporate interest payments would each raise US$ 1 trillion or more over a decade, but both have run into significant political opposition.
If neither provision survives, the corporate tax cuts that Ryan and Trump have proposed are “unrealistic,” said Alan Viard of the American Enterprise Institute.
Given the difficulties, Congress could abandon the goal of revenue- neutral tax legislation — but that move would create other issues. To get around a lack of Democratic support, Senate Republicans have said they plan to use a legislative manoeuvre that allows for passing a bill with a simple majority. Under that procedure, any provisions that would expand the long-term federal deficit would have to be only temporary.
A temporary cut would most likely spur companies to make bigger payouts to shareholders, not hire new workers, said Alan Cole with the Tax Foundation in Washington. Likewise, a permanent, but shallow, cut wouldn’t send most multinationals on hiring or investing sprees, he said — “though there’s always someone at the margin” that might benefit and reinvest.
Corporate executives aren’t interested in temporary changes. The Business Roundtable, a lobbying group made up of chief executives, wants “permanent, fundamental reforms that will accelerate growth big time and boost all Americans,” said Matt Miller, a vice-president for the group.
Similarly, Ryan’s office said in a statement last week that a temporary rate cut could actually result in economic decline rather than growth.
Some members of Congress have proposed a way to extend the life of temporary cuts — by changing congressional rules to expand the “budget window” that applies to deficit- increasing provisions from the current 10 years to as many as 30. Such a move comes with procedural challenges and political risks, according to budget experts.
From an i nternational perspective, the magic number for the U.S. corporate tax rate to hit is roughly 24 per cent — about the average rate in the Organisation for Economic Co- operation and Development, said Elaine Kamarck, a senior fellow at the Brookings Institution.
Getting below that number would help persuade U. S. companies to stop shifting profits offshore, said Kamarck.