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.