Will Congress Cross Trump’s Red Line on Corporate Tax Rates?

Will Congress Cross Trump’s Red Line on Corporate Tax Rates?


President Trump has said that cutting the corporate tax rate to 20 percent is “very much a red line,” and Treasury Secretary Steven Mnuchin last week said the administration was set on that number: "It’s not going up. I can tell you this is one of the things the president feels very strongly about."

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But the enormous loss in revenue created by the GOP tax cuts — the Committee for a Responsible Federal Budget puts the cost as high as $2.2 trillion over 10 years — may force Congress to consider a slightly higher rate in the end. Political calculations are a factor as well, with some lawmakers worried about the popularity of a bill that provides big cuts for corporations while raising taxes on some lower- and middle-class households.

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Sen. Susan Collins, a key Republican vote, echoed those concerns this past weekend, telling ABC’s George Stephanopoulos that she thinks “the reduction in the business tax rate is too steep, and that we could go to 22 percent, and then use that money, which is about $200 billion, to restore the tax deduction for state and local property taxes. That would really help middle income taxpayers.”

Martin Sullivan, chief economist at Tax Analysts, said Tuesday that a higher rate looks likely: “It seems inevitable--both for obtaining passage of their tax cut and for success at the polls in 2018--Republicans must provide more relief for the middle class and small business. The glaringly obvious way to pay for this is to hike the proposed 20% corporate rate to 22.5 or 25%.”

Given the fiscal and political constraints, a corporate tax rate higher than the proposed 20 percent seems like a logical compromise. But that still doesn’t mean it will happen. Asked earlier this month about a possible 22 percent top rate for businesses, Gary Cohn, the president’s top economic advisor, told Fox Business, “President Trump’s not going to agree to that.”