Trump’s take on corporate tax rate could look very much like Obama’s

In Photo: Steve Bannon (left), chief White House adviser, looks on as President Donald Trump makes remarks as he hosts a breakfast listening session with business leaders in the Roosevelt Room of the White House in Washington on January 23, 2017.

By Andrew Ross Sorkin

Just a few days after being sworn in as president, Donald Trump convened a meeting at the White House of some of the nation’s most prominent chief executives to discuss how to improve manufacturing. Trump was joined by Elon Musk of Tesla, Mark Fields of Ford, Andrew Liveris of Dow Chemical, Marillyn A. Hewson of Lockheed Martin and Michael Dell of Dell, among others.

Before the meeting formally began, with cameras rolling, Trump wanted to talk about corporate tax rates—specifically lowering them. During one debate with Hillary Clinton, he had told voters: “Under my plan, I’ll be reducing taxes tremendously, from 35 percent to 15 percent for companies, small and big businesses. That’s going to be a job creator like we haven’t seen since Ronald Reagan. It’s going to be a beautiful thing to watch.”

He repeated the 15-percent figure over and over again.

However, when Trump spoke to the CEOs that morning, he shifted the goal post slightly: “We’re trying to get it down to anywhere from 15 percent to 20 percent.”

Inside the White House, according to people involved in the conversations, the target rate had been bumped up again, to a minimum of 20 percent and very likely a bit more.

And now, given that the repeal of the Affordable Care Act is off the table—and with it the $1 trillion in tax cuts over the next 10 years that the administration needed to help make its tax plan deficit neutral—there is a good chance that any tax package would include a corporate rate that is even farther from Trump’s initial pledge, perhaps as high as 28 percent.

Don’t take my word for it. That’s the figure that Grover Norquist, the anti-tax activist who is the president of Americans for Tax Reform, and who has long sought the lowest rate possible, has calculated would be needed for the plan to be deficit neutral after 10 years. That way it could come under the heading of budget reconciliation, which would allow the Senate to pass legislation with a simple majority.

If the 28-percent corporate tax rate sounds familiar, that’s because it is: It was the same rate that President Barack Obama proposed in 2012 and again in 2013, when he also proposed to lower the tax rate for US manufacturers to 25 percent. He made the proposal again in 2014, 2015 and 2016. Each time, his tax plan was summarily dismissed by Republicans who called the rate too high and uncompetitive.

Now, Republicans may end up negotiating a tax package with a corporate tax rate that looks a lot like the one they rejected out of hand for the last five years.

Why is the rate so important?

Because almost all those on Wall Street—and in corner offices throughout corporate America—have been baking into their models a tax reform plan that they say will jump-start additional investments, leading to higher growth in the economy.

As an example, Randall Stephenson, the chief executive of AT&T, told analysts this year, “We know at AT&T that if you saw tax rates move to 20 percent to 25 percent, we know what we would do: We would step up our investment levels.”

Some of those investments become harder to justify if the rate is higher, executives say. The Standard & Poor’s 100-stock index already has an effective tax rate of about 28 percent, according to WalletHub.

The United States has the highest top statutory corporate tax rate among Group of 20 nations, according to a study by the Congressional Budget Office.

As evidenced by the stock market’s pullback recently, investors and analysts are redoing their math to account for the fact that tax reform may not happen as soon as they expected—the Trump administration had said it would happen by August—and that rates will not come down as much as had been anticipated.

House Speaker Paul D. Ryan, who oversaw the effort to repeal Obamacare, acknowledged that the bill’s failure would “make tax reform more difficult.”

He has yet to publish a new set of corporate tax rates, but his original plan called for a rate of 20 percent. That plan depended not only on Obamacare’s repeal, to save $1 trillion, but also on another plan that seems increasingly unlikely to gain support: a so-called border adjustment tax—a euphemism for an import tax on all goods—that was expected to raise another $1 trillion over 10 years.

The border adjustment tax, an obsession of Ryan’s, has divided Trump’s advisers. Stephen Bannon has been a proponent, seeing it as an incentive for more companies to make goods here in the United States. Others, like Gary Cohn, Wilbur Ross and Steven Mnuchin, have been more ambivalent, people involved in the discussions say, in part because other countries could retaliate, making it harder for US manufacturers to export goods.

Without the $2 trillion in revenue and tax savings that the border adjustment tax and Obamacare repeal would generate, it is virtually impossible to see how the Trump administration could find a path to a corporate tax rate anywhere near what it originally promised. (Of course, the administration could pull back on its pledge to lower taxes for the middle class, but that seems unlikely.)

The trillion-dollar question is whether lowering corporate taxes would ultimately have the desired effect.

“While there is no doubt that tax policy can influence economic choices,” a study by the Brookings Institution determined, “it is by no means obvious, on an ex ante basis, that tax rate cuts will ultimately lead to a larger economy in the long run.”


© 2017 New York Times News Service

Image credits: Doug Mills/The New York Times


Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Previous Article

Talking trade: Trump’s team looks at the done deals

Next Article

Big Ambitions: Amazon’s Expanding Empire

Related Posts

Read more

The many roles of an association CEO

I was invited by the Australasian Society of Association Executives (AuSAE) to the second run of its “Association Insiders” webinar series entitled, “The Many Roles of an Association CEO.” AuSAE is the premier not-for-profit professional society representing over 10,000 individual leaders working in associations in Australia and New Zealand.

Read more

Five things you should do to prepare your business for 2021

Small businesses around the globe are among the hardest hit as the health crisis continues to cause economic uncertainty in the country. With the country nearing into a year-long lockdown and keeping up with restrictions, small businesses owners have continued to innovate and work through the challenges, venturing their presence onto online platforms. The convenience of learning how to start a business from the confines of your home, and with the help of other business owners willing to lend a helping hand, has created a space for SMEs to flourish during the pandemic. Whether you’re starting out or looking to expand your business, here’s what you need to know to ensure you keep your business afloat:

Read more

What They Don’t Tell You about Climate Change

Two years ago the world pledged to keep global warming “well below” 2°C hotter than pre-industrial times. Climate scientists and campaigners purred. Politicians patted themselves on the back. Despite the Paris agreement’s ambiguities and some setbacks, including President Donald Trump’s decision to yank America out of the deal, the air of self-congratulation was still apparent this month among those who gathered in Bonn for a follow-up summit.