Republicans have backed away from their campaign trail talk about lowering the corporate tax rate as they begin to craft a major overhaul of spending and taxation.
Before the election, President Donald Trump talked about cutting the headline corporate from 21% to 20% at one point, and he endorsed reducing the rate to 15% for companies that make their product in America. But on Capitol Hill, such plans don’t appear to be a focus at this point.
“I’ve not heard anyone advocating for lowering the corporate tax rate,” Sen. Ted Cruz (R-TX) told the Washington Examiner.
The problem with cutting the corporate tax rate is that Republicans already face a daunting obstacle in enacting all the other tax cuts they desire without adding so much to the deficit that it scares off members of their party.
House Republicans this week approved the resolution framework for the major fiscal overhaul that Republicans plan to pass through budget reconciliation, a legislative process that allows bills to bypass the filibuster and pass with only a simple majority in the Senate.
As passed by the House, the budget resolution includes a $1.5 trillion floor for spending cuts with a target of $2 trillion in spending cuts and would allocate $4.5 trillion in net tax cuts for the House Ways and Means Committee, which will be tasked with extending the 2017 Tax Cuts and Jobs Act and tacking on new tax cut provisions that were promised by Trump.
Crucially, Senate leadership has been pushing to not only extend most of the TCJA provisions, but also make them permanent — adding to the cost and forcing some tough decisions if there is only $4.5 trillion to work with.
“I don’t see how you lower the corporate rate, not with all the headwinds on pay-fors — I just don’t see it,” Sen. Thom Tillis (R-NC), a member of the tax-writing Finance Committee, told the Washington Examiner.
Lowering the corporate tax rate to 15% for all corporations would slash revenue by between $460 billion and $675 billion through the next decade, according to the Committee for a Responsible Federal Budget. If the rate were lowered to 15% just for corporations that produce their goods domestically, the number would be more like $200 billion, according to the group.
Because of the costs of extending some of the individual tax cuts and other proposed tax changes, some Republicans have even eyed raising the corporate rate as a way to help offset costs. House Ways and Means Committee Chairman Jason Smith (R-MO) said this past year that some Republicans have wondered about raising the rate, although more recently has said he is confident it will at least remain at 21%, where it was set permanently by the 2017 tax overhaul.
Of note, the White House released its own list of tax priorities and lowering the headline corporate rate overall wasn’t among them — still, one of the priorities is “tax cuts for made in America products.”
Cruz said on Wednesday that his focus when it comes to the tax cuts is on other priorities.
“I’d like to make the tax cuts bigger and bolder, but what my focus on doing so is, No. 1, passing my legislation on no taxes on tips, and No. 2, providing additional tax relief to individuals,” Cruz said.
Still, given the early nature of the tax talks, other senators said that nothing is off the table and everything is in discussion, including lower corporate tax rates.
“It’s in the mix,” Kennedy said about lowering the corporate rate. “I don’t know if we’ll end up doing it, but it’s in the mix.”
“I’ve heard discussion,” Kennedy said when asked if his conference has talked about lowering the headline rate. “Right now, everything’s a priority, and we obviously can’t do everything, but it’s in the mix.”
Another issue with lowering the corporate rate is how it would affect “pass-through” businesses, or businesses that file through the individual side of the tax code. To make sure that that they were not put at a disadvantage to C-corporations, the 2017 overhaul included a new tax break for pass-through businesses, such as sole proprietorships, S corporations, and partnerships. But that deduction is now set to expire, and lawmakers are seeking to make it permanent.
If the corporate rate were lowered, there might be some calls from the small business world to not only extend the pass-through deduction but to further expand it to keep parity with the lower corporate rate — adding to the budget math challenges for Republicans.
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John Arensmeyer, founder and CEO of Small Business Majority, a small business advocacy group, told the Washington Examiner that his organization conducted a survey of small businesses and found that raising the corporate rate from 21% to 28% (as former President Joe Biden proposed) actually got a better response than lowering it to 15%.
“The corporate rate in and of itself is not as big an issue for most small businesses because they don’t pay it, but when they look at the overall tax code it does, the lower that gets, the more it makes them feel that it’s benefitting much bigger businesses,” he said.
