Corporate Rate a Wild Card as Tax Talks Begin

To the chagrin of some conservatives, negotiators may raise the 20 percent rate to offset a host of other givebacks.

House Ways and Means Chair Rep. Kevin Brady is welcomed by House Republicans including from left, House Majority Leader Kevin McCarthy, House Speaker Paul Ryan, Carlos Curbelo, and Cathy McMorris Rodgers, as they arrive to speak to the media following a vote on the GOP tax bill Nov. 16.
AP Photo/Jacquelyn Martin
Casey Wooten
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Casey Wooten
Dec. 7, 2017, 8 p.m.

After weeks of legislative wrangling to keep the tax-overhaul bill’s target corporate rate at 20 percent, some officials are now leaving open the possibility that it could inch upward.

“We haven’t had anything like this in a long time, since 1986, where you’ve got the corporate rate in play as an obvious dial,” said John Gimigliano, a principal at KPMG and a former senior tax counsel for the House Ways and Means Committee.

Nothing is finalized, but the proposal would help fund additional changes to the final tax language that the conference committee is set to begin work on next week. The Senate announced its committee members Thursday, with the House naming its members earlier this week.

Lawmakers are calling for changes to the final legislation, compared to the House and Senate versions, both on practical and ideological grounds. Among the possible changes is a fix to the corporate alternative minimum tax, preserving a deduction for high-cost medical expenses, and an expansion of a state and local tax deduction deal to include an income-tax option.

Paying for all of that would be a challenge, and lawmakers are keeping open the idea that the much-fought-for 20 percent corporate rate could increase to as much as 22 percent to raise revenue for the changes.

“They getting lots of pressure on all the other base-broadeners to relax them, or to address some injustices, either real or perceived, and all of those things come at some cost.” said Rohit Kumar, a principal at PwC and former aide to Senate Majority Leader Mitch McConnell.

Speaking to reporters Thursday, House Ways and Means Committee Chairman Kevin Brady defended the 20 percent rate, but didn’t give a hard no on raising it in conference.

“I continue to make the point that the 20 percent rate ought to be our goal and ought to be what we are shooting for,” Brady told reporters. “Having said that, we’re anxious to get to conference and have that discussion.”

And the White House is sending mixed signals about the idea.

Hours after the Senate passed its tax bill early Saturday morning, President Trump told a pool reporter that the final version could have a 22 percent corporate rate.

But Thursday, White House legislative director Mark Short appeared to walk back Trump’s weekend assertion, telling Reuters that the president stood behind a 20 percent corporate rate, saying that the previous remark was in response to conversations with lawmakers.

However, administration officials softened their position later in the day.

“Our focus has been on getting the lowest corporate rate possible,” White House press secretary Sarah Huckabee Sanders said. “15 is better than 20; 20 is better than 22; and 22 is better than what we have.”

Trump originally called for a 15 percent corporate rate earlier this year.

Brady said the White House’s openness to a 22 percent rate “is giving us flexibility in that area if it’s needed,” but no decisions have been made.

One issue that is likely to be changed is the Senate version’s plan to eliminate the corporate AMT. The 20 percent rate would negate many prized tax breaks, such as the research-and-development tax credit.

“There’s a conclusion that perhaps that created some unanticipated consequences that undermines parts of the bill,” Gimigliano said.

Fully repealing the corporate AMT would cost around $40 billion over a decade, Kumar said.

A common rule of thumb is that for every percentage point the corporate rate goes up, it raises $100 billion over a decade.

House and Senate conferees must also contend with pressure to fully preserve the mortgage-interest deduction for homes worth up to $1 million and another tax break for graduate-school tuition waivers.

Senate Majority Leader Mitch McConnell also said earlier this week that he was open to allowing residents to decide whether to use the $10,000 state and local deduction on either income tax or property tax, as opposed to the House and Senate bill’s plan to apply it only to property tax.

But if conferees adopt a corporate rate beyond 20 percent, it’s House conservatives that could be the tallest hurdle toward advancing a final version of the bill.

Conservatives are likely to rally to defend the 20 percent rate, the core of their tax-overhaul platform. House Freedom Caucus Chairman Mark Meadows drew a hard line Monday on the issue when speaking to reporters. The conservative Club for Growth released a statement to conferees Thursday calling on them to stand firm on the 20 percent rate.

Grover Norquist, president of Americans for Tax Reform, said entertaining an increase from 20 percent would open up the conference committee to a host of other proposals.

“The danger of tax reform is always that the lower rates become a piggy bank,” Norquist said.

One of those could be a proposal from Sens. Marco Rubio and Mike Lee, who introduced an amendment—which failed on the Senate floor Friday night—that would have expanded the child-tax credit, paid for by increasing the target corporate rate to 20.94 percent. Both senators voted for the bill anyway.

Neither senator is a conferee, but the tax bill last passed the House by a 51-49 margin. And Rubio told Politico on Wednesday that if the corporate rate went to 22 percent and didn’t use some of the funds to expand the child-tax credit, “I’m going to have a big problem.”

Norquist, a long-time tax cutter, said a figure like 22 percent wouldn’t hold. He sees it inching upward over time.

“You want to come to something that has an equilibrium, and 20 is a number people will live with; 22 is a number on the way to 25,” he said.

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