Senators Like 15% Corporate Rate, Caution It Won't Be Easy

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By Laura Davison, Colleen Murphy and Kaustuv Basu

A 15 percent corporate tax rate is attractive to many Republicans who would like to cut taxes, but it would also likely balloon the deficit, GOP senators said.

“It would be a wonderful place to be, but getting there would probably be more difficult than one would imagine,” Sen. Tim Scott (R-S.C.) told reporters April 25.

President Donald Trump is scheduled to release his tax plan April 26, with what is said to be a 15 percent tax rate for corporations—less than half the current statutory rate of 35 percent. The plan will also include a 15 percent rate for passthrough businesses, such as partnerships and limited liability companies, according to a White House official. The plan will call for the repatriation of corporate foreign earnings to be taxed at 10 percent, a White House official also said. The Wall Street Journal was the first to report the passthrough rate.

Republicans in the House, who have also proposed large corporate tax cuts, have said they like the idea of a 15 percent tax rate, but only if they can get the math to work. The House GOP plan would tax corporations at 20 percent and passthroughs at 25 percent.

Senators expressed similar thoughts. Cutting the tax rate to 15 percent would cost “well over $2 trillion” even before accounting for other tax expenditures, said Scott, a Finance Committee member.

Doing the Math

The economy would need to grow “an additional” 0.9 percent over the 10-year budget window to offset revenue lost in a tax cut, according to April 25 analysis from the Tax Foundation. The actual additional growth percentage is predicted to be around 0.4 percent, according to the right-leaning think tank’s modeling. Reducing the passthrough rate from 39.6 percent to 15 percent would require even more economic growth.

Senate Majority Leader Mitch McConnell (R-Ky.) told reporters April 25 his “preference is that we treat businesses of all types similarly.” But he also said it’s “pretty clear” that the Senate will have to use budget reconciliation to pass a tax bill. That would require the tax cuts in the legislation to be offset with other revenue. If it isn’t, the reductions would expire in 10 years.

A reduction of the maximum corporate tax rate to 20 percent for three years would impact revenue beyond 10 years, according to a Joint Committee on Taxation letter to House Speaker Paul D. Ryan (R-Wis.).

Ryan’s press office didn’t respond to a request for comment. The JCT policy is not to comment on letters sent to members.

The estimate would make it problematic for Republicans to pass a tax bill in the Senate using a fast-track budget process called reconciliation. The House GOP tax blueprint suggests a corporate tax rate of 20 percent, but the Trump tax plan reportedly suggests a corporate rate of 15 percent.

Senate Finance Committee Chairman Orrin G. Hatch (R-Utah) said previously that it would be difficult to get down to a 15 percent corporate rate because of the big revenue loss. But an April 25 New York Times article said that Hatch was open to the idea even if it added to the deficit.

It’s too early to discuss the plan’s details as lawmakers are “just getting into it,” Hatch said after a meeting with White House officials and other lawmakers to discuss tax reform.

Thinking It Through

Sen. Debbie Stabenow (D-Mich.), a Finance Committee member, said she wanted to see the tax plan in writing. Stabenow said she was curious about how the president’s tax plan would affect small businesses, working families and the budget deficit.

Sen. Bill Cassidy (R-La.), who also sits on Finance, said he would be concerned about cutting the corporate rate so much that it increases the deficit, but also that corporations make up only a portion of total tax receipts—mitigating the effect of a large cut.

“They’re still very much in kind of the initial discussion phase, so no one is drawing a line in the sand to say ‘Oh my gosh, you can’t do this,’” he said. “I think people just want to see the details. It’s not that people do or don’t care about them. It’s just that, ‘OK, what are the trade-offs?’”

Still, tax reform is “wiser” if it’s deficit-neutral, he told Bloomberg BNA.

With assistance from Jennifer Jacobs and Sahil Kapur in Washington.

To contact the reporters on this story: Laura Davison at lDavison@bna.com, Colleen Murphy at cmurphy@bna.com and Kaustuv Basu at kbasu@bna.com, in Washington

To contact the editor responsible for this story: Meg Shreve at mshreve@bna.com

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