News
Trump is interested in cutting corporate taxes. Not all of his GOP colleagues are on board.
Republicans are united behind Donald Trump as their nominee, but they are still divided over what to do with the 21% federal corporate tax rate if they control Washington next year.
Some are pushing for a corporate tax as low as 15%. Others have signaled a willingness to accept a hike of up to 25%. Donald Trump’s current position is remarkably right in the middle after he floated a 20% rate during a recent meeting with CEOs.
This emerging internal debate has only gained urgency in recent days, as the party sees its chances of a strong showing in November — perhaps even a GOP victory — increasing after Joe Biden’s shaky performance in the recent debate.
The party is also gearing up for its convention later this month, where the tax issue is sure to be on the minds of many party leaders and donors.
It’s a question that largely comes down to whether to make lower corporate rates a party priority over other concerns. There may not be a resolution for more than a year, but the different sides are staking out their positions now.
“Ultimately, you want the rate to be as low as possible,” Richard Stern of the Heritage Foundation said in a recent interview, arguing that the economic benefits of a cut outweigh the potential effects on America’s growing debt.
The bigger question within the party at the moment, he added, is whether the issue can be sold to voters.
“What you’re seeing is people worried about how popular corporate tax cuts are going to be.”
A broad debate
Concern about a backlash among voters is clearly a driving force behind comments on the other side of the debate made by some populist-minded Republicans.
Rep. Chip Roy is an influential House Republican who recently told Politico “There is a growing concern that we should not be doing what American companies want.” He said he would be open to raising corporate rates by up to 25% if it would help pay for other priorities.
That point was echoed by others, including the powerful chairman of the House Ways and Means Committee, Rep. Jason Smith. The Missouri Republican has previously said that some Republicans may be able to find an alliance with Democrats to raise corporate taxes.
Donald Trump speaks at a rally in Philadelphia on June 22. (JIM WATSON/AFP via Getty Images) (JIM WATSON via Getty Images)
As for Democrats, they are much more united on this issue. Biden has promised to try to raise the federal rate to 28% if he is reelected.
Leading Democrats are also working to ensure that corporate taxes will be in the spotlight in 2025 as a way to reduce budget deficits and also make big companies pay their “fair share.”
The story continues
How this debate within the GOP and in Washington ultimately plays out will, of course, be heavily shaped by the results of the November election. A strong showing by Democrats — especially a victory by President Biden — is will likely take corporate tax cuts off the agenda altogether.
But the ongoing Republican debate demonstrates how even a Republican victory in the White House, Senate and House may not provide immediate clarity on the corporate tax landscape.
The biggest ongoing tax debate is over a series of individual tax provisions signed into law by then-President Trump in 2017, many of which are set to expire at the end of 2025.
That same law reduced the corporate rate from 35% to 21%, but it did so permanently. That means the 21% rate is not formally up for debate at the moment, but both Democrats and Republicans are eager to put it on the table.
If Republicans do well in November, party leaders are already discussing passing tax reform using a process called reconciliation, which would allow them to enact it without a single Democratic vote if they remain united.
Contributions from the business world
The business community will also have a voice in this debate.
The Business Roundtable, an association of senior business executives, recently announced plans to spend more than $10 million to spread the message that tax reforms are necessary for global competitiveness.
The groups want, at the very least, to maintain the current rate of 21%.
“Any increase in that rate would immediately put the U.S. rate near the top of nearly all corporate rates among other major economies,” Procter & Gamble noted (PG) CEO Jon Moeller during a recent roundtable with reporters. The P&G chief is leading tax issues for the group.
Rep. Chip Roy (R-TX) gestures during a hearing at the Capitol in June. (Chip Somodevilla/Getty Images) (Chip Somodevilla via Getty Images)
The conversation on corporate taxes will happen in parallel with the business tax provisions that will also be debated in 2025. These are incentives in the tax code for business activities like research and development, as well as interest payments.
Many of these credits were also enacted in 2017, and many have already expired. Some packages of new credits are widely expected to be part of next year’s tax negotiations if they are not addressed earlier.
Stern of the Heritage Foundation said negotiations over tax levels could also raise broader concerns in the Republican Party about the eagerness of American companies to embrace social causes in recent years.
The most common accusation among many in the party is that top executives have too often abandoned their fiduciary duty to shareholders, and that new regulations from Washington could limit their ability to take environmental, social and governance (ESG) issues into account.
Stern said he would like to see this issue addressed and “in some ways, the tax code is a place to enforce this.”
It’s a clear potential point of agreement across the party, as Republicans of all stripes, including figures like Rep. Roy, frequently highlight what they call “conscious capitalism.”
Ben Werschkul is a Washington correspondent for Yahoo Finance.
Click here for business and money related political news
Read the latest financial and business news from Yahoo Finance