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Financial Planning > Tax Planning > Tax Reform

Business Groups Fear Democrats Will Push for Corporate Tax Hike

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Business groups are preparing themselves for a potential corporate tax hike under Democrats.

The Hill reports that Democrats, who will take control of the House in January, could launch proposals to raise corporate taxes.

Both President Donald Trump and Democrats have championed the need to fund infrastructure projects — repairing and upgrading roads, rails, bridges and the like — and the corporate tax rate could provide the means to pay for such improvements.

But while Trump favors infrastructure work, the report says, any rescission of the deep cut to the corporate tax rate passed in 2017 would be a tough, if not impossible, sell. Still, Democrats — even those who favored a reduction in the corporate tax rate — thought Trump’s tax law brought it down too far, from 35% to 21%.

In addition, Congressional Democrats voted unanimously against the law, which they said benefited businesses and wealthy individuals substantially more than the average taxpayer.

But even last year some Senate Democrats suggested increasing in the corporate rate to 25%, as well as ending parts of the tax law that benefit the wealthy, as a means of paying for $1 trillion in infrastructure investments. They said that increase would bring in $359 billion over 10 years.

Businesses, however, are opposed, as is the Republican-controlled Senate. “Talk of repealing any part of the tax reform bill is a nonstarter,” Ed Mortimer, U.S. Chamber of Commerce vice president of transportation and infrastructure, said in a statement in the report.

And incoming Senate Finance Committee Chairman Chuck Grassley, R-Iowa, is quoted saying, “Hiking taxes on U.S. businesses would hurt American competitiveness in the global economy and could lead to significant layoffs of American workers.”

Infrastructure work, though, isn’t the only thing on Democrats’ minds as they consider a boost in the corporate tax rate. They’ve also suggested that the money from such an increase could pay for restoring the full state and local tax deduction and establishing a lower threshold for the medical-expense deduction — amendments they proposed during a House Ways and Means Committee markup back in September.

And while businesses aren’t happy about it, Michael Linden, a fellow at the Roosevelt Institute, told The Hill that the tax-cut law was a “political loser” for Republicans and that it was smart politics for Democrats to propose raising the corporate rate to pay for things like infrastructure or an expansion of the earned income tax credit.

“That’s a very good trade economically,” he said. “That’s a no-brainer.”

Even before the tax cut, a majority of Americans supported the corporate rate, according to a Pew Research survey published in September 2017. About 52% agreed, while about 24% said the rate should be cut.

The tax law as a whole is unpopular; a Quinnipiac University poll taken in June found that 39% of respondents opposed it, while 46% disapproved.


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