Trump loves corporate tax cuts

Trump loves corporate tax cuts. Voters, not so much

By BRIAN FALER

President Donald Trump loves the idea of cutting the corporate tax rate, but voters?

The proposal, the centerpiece of the administration's new tax plan, is hardly a political winner, with recent polling showing that most Americans — including 44 percent of Republicans — believe corporations are not paying enough already.

“It just doesn’t sell,” said one former longtime Republican tax aide. “Most [Republican lawmakers] come from rural districts. They don’t have big corporate headquarters in their districts, and their constituents don’t care if GE gets a 25 percent rate.”

“If anything, there could be a backlash,” he said.

The only way to make a Trump-sized cut in the corporate rate — which he’d reduce to 15 percent, from the current 35 percent — politically salable is to slather on lots of other tax cuts for everyone else, tax veterans say.

Historically, going back to at least Ronald Reagan, lawmakers have rarely cut business taxes without simultaneously offering far bigger tax cuts for individual taxpayers — though in this case, that would send the price of Trump's already costly plan soaring.

Trump appears to be giving more to businesses, and his Treasury Secretary Steven Mnuchin said Thursday he couldn’t guarantee the middle class would see a tax cut.

“This is a partisan plan to give advantages to the most influential special interests in the country and crumbs for working people,” said Sen. Ron Wyden, the top Democrat on the tax-writing Finance Committee.

Details are still sketchy, but the Committee for a Responsible Federal Budget (CRFB) figures Trump’s plan would dole out roughly $3.7 trillion in tax cuts to businesses, between his plan to cut the corporate rate and offer a similar tax reduction to unincorporated businesses.

He’s also offering individuals a number of tax cuts, including lower rates, a bigger standard deduction and expanded breaks for child care expenses. But he’s simultaneously taking away breaks, including most itemized deductions, including a long-standing write-off for the state and local taxes.

That would net out to a roughly $1.8 trillion tax cut for individuals, the CRFB estimates.

Asked about the plan’s emphasis on corporations, National Economic Director Gary Cohn said: “This tax reform package is about growing the economy, creating jobs.”

“That’s how we’re looking at this plan,” he said in a briefing with reporters.

On Thursday, Mnuchin said he hoped — but couldn’t guarantee — the plan would mean a tax cut for the middle class.

“That’s our objective absolutely,” Mnuchin told ABC’s “Good Morning America.” “I can’t make any guarantees until this is done and on the president’s desk.”

Many economists applaud the focus on the corporate rate — now the highest among 34 industrialized democracies — calling it one of the biggest problems with the tax code. Lawmakers have not cut the corporate rate in 30 years.

“Lowering the corporate rate is like the chicken soup of tax policy — it makes everything better,” said Marty Sullivan, chief economist at the nonpartisan Tax Analysts. “There’s more incentives to invest in the United States and there’s less incentive to engage in tax shelters.”

The problem for lawmakers is all the people who aren’t economists.

Sixty-two percent said they are bothered “a lot” by a sense that corporations don’t pay enough in taxes, according to a survey by the nonpartisan Pew Research Center, making it a bigger concern than the code’s complexity or how much they pay in taxes.

And if lawmakers agree to cut the corporate tax, they will face enormous pressure from other types of businesses or complaints they are helping Home Depot but not their local hardware stores.

Trump's plan to cut rates on those “pass through” companies — whose profits are passed directly to the owners and taxed as personal income — will cost an additional $1.5 trillion, on top of the $2.2 trillion cost of the corporate-rate cut, the CRFB says.

But that won’t be enough for many Republicans who, for all their friendliness to the business community, don’t want to be see cutting business taxes without doing something commensurate for individual taxpayers.

When Reagan pushed through massive tax cuts in 1981, he was careful to include more than twice as much for individuals than businesses. When George W. Bush cut taxes in 2001 he almost entirely ignored businesses, focusing on cutting individual taxes.

Even the last big cut in the corporate rate — in 1986 — was actually a tax increase in disguise that lawmakers used to finance tax cuts for everyone else.

That seminal legislation slashed the corporate rate to 34 percent from 46 percent, but lawmakers simultaneously took away so many business tax deductions and other narrow preferences that corporations ended up swallowing a $120 billion tax increase. Lawmakers used that money to offset the cost of similarly sized breaks for individuals.

But not everyone agrees that lawmakers must follow that formula.

Stephen Moore, a former Trump tax adviser, says Republicans ought to focus on simply cutting taxes on corporations and individuals, throw in some infrastructure spending, and sell it to the public as a jobs bill.

“The big beneficiaries of business tax cuts will be workers,” he said. “We’re cutting taxes for employers so they can create more jobs — that’s the argument.”