With all of the controversy surrounding the new $10,000 cap on the federal deduction for state and local taxes (the “SALT” cap), some Democrats have proposed increasing the flat corporate tax rate in order to offset a repeal of the controversial new rule.
The 2017 tax reform legislation reduced the corporate tax rate to 21 percent, which was a significant reduction from the previously applicable top 35 percent corporate tax rate. Democratic proposals to raise the corporate tax rate have varied in the exact amount of the increase, which would range from 23 percent to 28 percent.
We asked Professors Robert Bloink and William Byrnes, who write for ALM’s Tax Facts and hold opposing political viewpoints, to share their opinions on the advisability and viability of using an increased corporate tax rate to support repeal of the SALT cap.
Below is a summary of the debate that ensued between the two professors:
Byrnes: Democrats can’t even agree on the amount of a corporate tax increase that they would support and why. Reducing the corporate tax rate to 21 percent was a strategic decision designed to bring the country in line with the rest of the world so that our businesses could compete globally without having to move assets offshore in moves to avoid the ridiculously high 35 percent corporate income tax rate that applied under previous administrations. Going back on the promise of lower corporate taxes and increased competitiveness at this stage would be a disaster.
Bloink: Professor Byrnes is obviously exaggerating when he claims that a two-to-seven percent corporate tax hike would be a disaster, when major corporations scored a 14 percent decrease in tax rates just last year. The unpopularity and unfairness of the SALT cap is clear, and legislators from high tax states are not going to stop until they find a way to offer a more fair tax position to their residents. Using a slight corporate tax hike to support repeal of the SALT cap seems like a small price to pay for fairness and equality among the states.
Byrnes: Professor Bloink and those who share his views are underestimating how beneficial a competitive corporate tax environment will be to the nation as a whole. Taxpayers who are subject to the SALT cap benefit from a robust economy in the same way that taxpayers who live in low tax states benefit. That sounds like equality to me.
Bloink: And Professor Byrnes and those who share his views are failing to recognize that tax reform was supposed to benefit everyone from a tax perspective-Republican claims that all taxpayers got a tax cut fall flat when you look at taxpayers in high tax states who are now seeing even higher taxes because of the SALT cap. No one is proposing a corporate tax increase that would bring us back to pre-reform levels, but a few percentage points could provide the benefit of a SALT cap repeal for individual taxpayers while still allowing a significant tax break for corporations when compared to pre-reform law. It seems to me that everyone wins here.
Byrnes: Everyone does not win if we go back on our promise to corporations. Corporations have taken actions in reliance on the 21 percent rate, we need to give this reduction a chance to work before we rashly jump in and increase the rate again—even by a few percentage points. When corporations can’t rely on tax cut promises, that’s bad for the economy as a whole, and a struggling economy is bad for everyone.
Bloink: Raising the corporate tax rate to only 25 percent would raise about $1 trillion in revenue, which is far more than the SALT cap generates. We could not only repeal the SALT cap, but could dedicate funds to infrastructure projects and other projects and programs that are in dire need of federal funding.
Byrnes: And the higher profits seen by corporations because of the tax reduction will also generate significant tax revenue if we only give the tax reform rates time to work. It’s been one year, and we cannot now go back on our promises to help support American businesses.
Bloink: The bottom line is that corporations received a windfall under the Tax Cuts and Jobs Act, which was passed hastily and without bipartisan support. Now is the time to fix some of the problems with the reform package to generate more equality among all taxpayers, and provide a more even distribution of benefits between corporations and individuals.
— More Bloink & Byrnes Go Thumb to Thumb:
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