You are here
Democrats are going to try to raise the corporate tax rate
[WASHINGTON] Democrats plan to use their control of the House to argue for raising the corporate tax rate by a few percentage points - a long-shot change that, if enacted, could cause the Republican-championed tax cut to unravel.
For now, the effort is a political talking point, as Democrats look to set the agenda for the 2020 elections and galvanize voters by pushing for middle-class relief. Increasing the corporate rate is likely to be a nonstarter in the Senate, as long as Republicans control the chamber. They've cited the new corporate rate as integral to the tax law and responsible for the improved economy.
But if the move were to happen eventually, it could undermine the foundation of President Donald Trump's signature legislative achievement. One of the key features of the overhaul was slashing the corporate rate to 21 per cent - a level chosen because it's below many foreign competitors' rates, which are in the mid-20s.
Mr Trump and Republican leaders have promised that their changes to the corporate tax code would spur job creation and economic growth, and prevent US companies from moving their income and tax liabilities to lower tax countries.
Increasing the rate to, say, 25 or 28 per cent, would incentivize companies to keep shifting their income offshore and engage in "tax games," said Mark Prater, former chief tax counsel for the Senate Finance Committee and one of the main architects of the 2017 law. Since last week's midterm elections, top House Democrats have been tight-lipped about exactly how high they'd like to set the rate.
A corporate rate hike would also bring the levy closer to what pass-through entities such as partnerships and LLCs effectively pay - and that could cause corporations to reconsider their structure since they face two layers of tax. Private equity firms KKR & Co and Ares Management LP have already switched to corporations from partnerships to take advantage of the low corporate rate.
"There is a delicate relationship between all of these features," said Mr Prater, who's a managing director at accounting firm PwC. "The corporate rate doesn't make up that big of a chunk of the US tax system, but it has pretty significant consequences on the rest of it."
House Democrats have said they plan on using their new majority to hold hearings about the Republican tax overhaul, arguing it's a giveaway to corporations and the wealthy. Increasing the corporate rate by a few notches is one of the easiest ways to raise hundreds of billions of dollars in one shot.