Republicans negotiating a final GOP tax bill are reconsidering proposals to shrink the plan’s corporate tax cut amid ferocious opposition from Senate Republicans as well as outside conservative and business groups. Both separate bills that passed the House and Senate would lower the corporate tax rate from 35 percent to 20 percent. But lawmakers negotiating the final bill have considered raising the corporate rate to 22 percent, raising new revenue that they would use to offset other changes they plan to make in the final package.
U.S. Federal Corporate Tax Rate from 1920 to 2017
source: tradingeconomics.com
On Friday, a conservative advocacy group tied to the Koch brothers criticized Republican officials for considering the diminished corporate tax cut.
“Including a corporate tax rate any higher than 20 percent would be a last-minute deviation from the unified framework, and would weaken the pro-growth aspects of the legislation.”
“Congressional leaders should stick to their vision for a tax code that improves the well-being of all Americans, and hold firm on a 20 percent rate that gives Americans confidence that the days of being average are over,” said Nathan Nascimento, executive vice president of Freedom Partners, in a statement. “Including a corporate tax rate any higher than 20 percent would be a last-minute deviation from the unified framework, and would weaken the pro-growth aspects of the legislation.”
Congress, a higher tax rate only undermines full economic benefits for American families & businesses. https://t.co/jn9eO8UwqB #TaxReform @GOPSenate @HouseGOP pic.twitter.com/a1ZCF1ojP0
— Freedom Partners (@FreedomPartners) December 8, 2017
Senate Finance Committee Chairman Orrin G. Hatch (R-Utah) said earlier this week that he opposed raising the rate to 22 percent. “Not as far as I’m concerned,” he said. “It’s still 20.” Other Republican senators have also come out strongly against scaling back the corporate tax cut, even while acknowledging that the bill has problems that had to be resolved. “We’re far better off, for a lot of reasons, if we can hold it to 20, but we do have some challenges that we’ve got to work through,” Sen. Patrick J. Toomey (R-Pa.) said.
President Trump opened the door to the 22 percent corporate tax rate this past weekend. “It could be 22 when it comes out, but it could also be 20. We’ll see what ultimately comes out,” the president said. Trump had long demanded that the corporate rate go no higher than 20 percent, making his statements, which came hours after the Senate passed its version of the tax bill, a surprise to many in the GOP. White House officials later walked back that position, with Marc Short, the White House legislative affairs director, telling Reuters that the administration stands behind the 20 percent figure.
On Wednesday, the Senate voted to send the tax bill to conference, where House and Senate lawmakers are attempting to craft a final package that can pass both chambers. No plans were ever finalized, but negotiators had considered raising the corporate rate to 22 percent to fund several changes that they hoped would ensure support from on-the-fence members.
Republicans need at least 50 votes to pass the measure through the Senate, and they got 51 to successfully pass their first version earlier this month. The House bill passed in November by a wider margin, but many Republicans who voted for it said that they would seek additional changes in subsequent versions of the legislation. No Democrats in either chamber have supported the measure.
Republican leadership is trying to raise money to fix some of the objections raised over the bill, including the elimination of the state and local tax deduction that could hit wealthy GOP donors who live in blue states. Negotiators are also trying to find money to scale back the bill’s alternative minimum tax, which has alarmed corporations because it would limit the deductions and credits they can claim.
The procedural rules Republicans are attempting to use to pass the bill through the Senate limits how much their plan can add to the federal deficit. That means any tax cuts they expand have to be offset with new revenue elsewhere in the measure. Each percentage-point increase in the corporate tax rate would give Republican lawmakers approximately $100 billion in revenue over 10 years to work with.
Freedom Partners has not been alone in cautioning against the higher rate. Some economic analysts say that the higher corporate tax rate could undermine some Republican assurances about the bill’s promise, particularly over economic growth.
An increase of two percentage points in the corporate tax would reduce the bill’s projected GDP growth by 0.3 percentage points, according to the Tax Foundation, a right-leaning think tank frequently cited by Republicans during the tax debate. That would lead the GOP plan to create 60,000 fewer jobs, the Tax Foundation said. “The permanent corporate rate cut to 20 percent is the most growth-producing provision in either of the two plans,” wrote Tax Foundation President Scott A. Hodge. “The economic consequences of scaling that provision back should not be dismissed easily.”
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The House will not vote next week on a final agreement to rewrite the tax code, though House and Senate negotiators are expected to work through the weekend. “It will not come up next week, but if it could, I would bring it up as soon as we come out of conference, because I do believe the American people are waiting for a Tax Cuts and Jobs Act,” House Majority Leader Kevin McCarthy told colleagues late Thursday in remarks on the House floor.
His comments come as lawmakers work behind closed doors on a compromise tax plan that they can send to President Donald Trump to sign into law. House Ways and Means Committee Chairman Kevin Brady said negotiators from the two chambers will formally meet on Wednesday.
Dec. 22 has been widely seen as the unofficial deadline in recent days, as that’s the date federal funding will run out under a stopgap spending measure and lawmakers are expected to turn their attention to spending again.
Gary Cohn, the chairman of the National Economic Council, told CNBC today that “a lot of progress is being made.”
“This is going to be a big weekend for the conference committee; they’re spending the weekend working on taxes, and I think we’ll see an enormous amount of progress over the weekend,” he said. McCarthy also announced the House would be in session the week of Dec. 18, when the congressional calendar had both chambers on recess.