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White House Mulls Minor Corporate Rate Cut as Market Slides

Posted on Mar. 2, 2020

President Trump wants to lower the corporate tax rate 1 percentage point to an even 20 percent, according to a top White House official.

“He’s never liked the fact that the corporate tax is 21 percent. He always wanted it to be 20,” acting White House chief of staff Mick Mulvaney said February 28.

Speaking at the Conservative Political Action Conference in Fort Washington, Maryland, Mulvaney said that the “Tax Cuts 2.0” effort is one of the administration’s top priorities in a potential second presidential term for Trump. His remarks came at the end of a week during which the Dow Jones Industrial Average fell more than 12 percent over fears of the spreading coronavirus.

Making permanent the expiring provisions of the Tax Cuts and Jobs Act is a big part of the potential second round of tax cuts, Mulvaney said. He also mentioned that the White House is still considering indexing capital gains to inflation — something the administration had considered doing unilaterally via executive action, although Trump has occasionally signaled unease with that move.

The White House has floated several other possible tax changes for its Tax Cuts 2.0 effort, including a type of universal savings account to boost taxpayer investment in the stock market, a payroll tax cut, and other changes that it says would be aimed at middle-income taxpayers and small businesses. It’s also reportedly considering reviving a corporate alternative minimum tax and a cap on corporate state and local tax deductions, wary of public perception that the TCJA was mostly a corporate tax giveaway.

Notably, the White House’s recently released budget proposal called only for making the expiring individual tax provisions of the TCJA permanent, which would allow other business tax provisions, like full expensing  and the amortization of research and development expenses, to phase out as scheduled.

But Why?

Tax policy observers weren’t clear on what to make of the latest pitch to cut the corporate rate.

Adam Michel of the Heritage Foundation said he’d welcome any reform that lowers the corporate rate, whether that’s by 1 percentage point or more. He noted that Trump had originally called for a 15 percent corporate tax rate, which he said would be even better.

But Michel said that rather than expend energy on another corporate rate cut, the White House should prioritize making permanent the full expensing provision, which he deemed one of the most pro-growth components of the TCJA.

Gordon Gray of the American Action Forum said the economic growth effect of a corporate rate cut of 1 percentage point would be “probably imperceptibly small, but positive,” and not enough to be worth the political hassle.

“I’d imagine that if the administration decided to charge up the hill to get a new round of tax changes passed, everybody would have a hard time making the case that a 1 percentage point change would be worth passing into law,” Gray told Tax Notes.

And if the purpose of the White House’s pitch is to communicate that it’s still pro-business, there are better ways to do that, Gray said. Businesses are far more interested in implementation of the TCJA, he said, adding that they’re worried about “little landmines” that are baked into the 2017 tax law, like the expiration of expensing and the R&D provision.

Steve Wamhoff of the Institute on Taxation and Economic Policy saw no justification for another corporate rate cut. “To further cut the statutory corporate tax rate is ridiculous when we know that several profitable corporations are already getting by with paying nothing,” he said.

Instead of cutting the corporate tax rate yet again in a never-ending race to the bottom with other countries, Wamhoff said, the United States has the opportunity to “show some leadership and actually collect some tax revenue from corporations” by cutting back on corporate tax breaks and closing loopholes.

Market Watch

The stock market’s continued tumble February 28 led some to ponder what effect that might have on tax policy proposals from the left and the right.

Wamhoff said the market’s slide would be unlikely to deter Democrats from pursuing a financial transactions tax, because the types of trades that would be most affected by such a tax are high-frequency trades “that arguably are not benefiting our economy.”

Gray similarly said Democrats wouldn’t be turned off from taxes aimed at the financial market simply because of a weaker market, recalling that the Obama administration called for a tax on banks in 2010, just two years after the financial crisis.

Gray was more interested to see how a mark-to-market system, like the one proposed by Senate Finance Committee ranking member Ron Wyden, D-Ore., would fare under the current market adjustment.

“To me the most relevant question, at least from the tax proposals regarding the market, is if you go to mark-to-market, are you going to be writing big checks for people?” Gray said. He said that in its “purest, simplest form,” a market-to-market proposal would result in issuing checks to taxpayers who end the year with unrealized losses.

“That’s a question that I think remains unresolved,” Gray said.

On the conservative side, the White House’s savings tax incentive, a type of universal savings account, was reportedly aimed at boosting participation in a hot stock market by low- and middle-income taxpayers, but observers said the weaker market is similarly unlikely to dampen the White House’s enthusiasm for the proposal.

“Clearly, we’re having a huge market correction, but I don’t think that alters the underlying principle behind the proposal,” Gray said.

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