A day after top White House officials suggested they would be willing to back off cutting the corporate tax rate to 15 percent, President Trump doubled down on the proposal, a move that could stymie efforts to woo Democrats into lending their support.
“He’s adamant about this 15 percent rate,” Office of Management and Budget Director Mick Mulvaney said in a September 13 interview with Fox Business News, adding that it was a point Trump emphasized to him earlier that morning.
Mulvaney said the idea of reducing the rate to between 20 percent and 25 percent was “not sitting well” with Trump because it wouldn’t be competitive enough with other countries’ corporate tax rates. “We’re pushing hard for that 15 percent number,” he added.
Trump’s insistence on a 15 percent rate appears to place him at odds with both top congressional Republicans and members of his own administration. Treasury Secretary Steven Mnuchin acknowledged September 12 that a 15 percent rate might not be viable, given concerns over deficits, and White House Legislative Affairs Director Marc Short said the administration would likely have to compromise on its position. House Speaker Paul D. Ryan, R-Wis. likewise said September 7 that a corporate rate in the low- to mid-20s can “make these numbers work.”
The challenge of reducing the corporate rate as dramatically as Trump wants is illustrated in a September 13 report by the Urban-Brookings Tax Policy Center, which examines three scenarios to see how individual and corporate rates could be reduced yet still remain both revenue neutral and distributionally neutral over a 20-year period.
Tax Policy Center Director Mark Mazur said one of the main takeaways of the report is that even if you take a meat cleaver to all tax expenditures associated with the corporate income tax, the rate can only drop to 26 percent at most if the goal is to raise the same amount of revenue from the tax. “That’s about as good as you can do, and this confirms analysis that [the Joint Committee on Taxation] had done a couple years ago,” he said.
But with Trump pushing a corporate rate as low as 15 percent while also opening that rate up to passthroughs, Mazur said it raises the question of whether Republicans will stick to revenue-neutral tax reform if they find new sources of revenue to pay for cuts that deep, or if they raise revenue from the individual income tax side to pay for corporate rate reductions.
The report “introduces a note of realism” about how low rates can feasibly be reduced, Mazur said. It also describes the possible results of repealing “virtually all tax expenditures in the tax code, [but that is] something that we all acknowledge is not politically feasible,” he added.
And although GOP leaders have said they plan to include revenue raised from dynamic scoring as an offset, Mazur said that with revenue-neutral tax reform, “you should not expect there to be large growth effects.” Repealing tax incentives may in some cases lead to a better allocation of capital, but repealing others, like accelerated depreciation, could also reduce incentives to invest, he explained.
GOP leaders in Congress have offered mixed messages about whether tax reform must be revenue neutral, but speaking for the White House, Mulvaney said that revenue neutrality “isn’t at the top of our priority list.”
White House press secretary Sarah Sanders touted Trump’s push to bring Democratic lawmakers on board for tax reform at a September 13 briefing. Sanders cited Trump’s dinner September 12 with a bipartisan group of senators, a meeting September 13 with a bipartisan group of House lawmakers, and a meeting that was to take place later that evening with House Minority Leader Nancy Pelosi, D-Calif., and Senate Minority Leader Charles E. Schumer, D-N.Y. — all meetings with an emphasis on tax reform.
“The president and his team will continue to engage with all members of Congress who are willing to work with us to deliver this critical relief for the American people,” Sanders said, adding that Vice President Mike Pence also was scheduled to meet with lawmakers that evening to discuss the reform effort.
Yet Trump’s focus on a 15 percent corporate rate could undermine his bipartisan outreach. An August 1 letter signed by 45 Senate Democrats lists revenue-neutral tax reform as one of the preconditions for Democrat engagement on reform, and at least two of the three senators who didn’t sign the letter have said elsewhere that revenue neutrality is necessary for their consideration of supporting a tax reform bill.
Trump has also sought to advance another message to Democrats: tax reform would not be a tax cut for the wealthy taxpayers, which would meet another precondition of Senate Democrats.
“The president was adamant from the get-go: This is not a tax cut for the rich,” Sen. Joe Manchin III, D-W.Va., said following the September 12 dinner. Trump reiterated that point in remarks ahead of his September 13 meeting with House lawmakers, saying, “the rich will not be gaining at all with this plan,” even suggesting that they could end up facing a tax increase.
And while Trump indicated that it would be preferable to have bipartisan tax reform, he also made clear he was willing to accept a Republican-only effort.
Mulvaney likewise said that the White House was willing to “work with anybody” on tax reform, but he added, “the first question we’ll ask when we’re coming to work with you is, ‘Can you help us get to 15 percent?’”
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