2025 tax debate heats up

Corporations face reversal of fortune as 2025 tax debate heats up

Businesses were a big winner in the Republicans’ 2017 tax law, but with debt concerns mounting, they are on the defensive.

By Brian Faler

Corporations were among the biggest winners when Republicans pushed through sweeping tax cuts in 2017, getting a whopping 14-percentage point cut in their tax rate.

But with lawmakers facing intense pressure to extend trillions in tax cuts next year that mostly benefit individual Americans, both Republicans and Democrats see corporations as a potential piggy bank to cover the huge hit to the budget.

“There’s a bubbling-up concern that we should not be doing the bidding of corporate America,” said Rep. Chip Roy (R-Texas), who says he’d consider kicking the corporate rate up to 25 percent, from the current 21 percent, if it means being able to extend breaks for individuals and small businesses.

“I’d like to see corporations getting with the program and saving America, instead of just looking at their bottom line.”

Such anti-corporate sentiment is running high among increasingly populist-minded Republicans, and former President Donald Trump’s recent proposal to shave a point off the corporate rate will face resistance from some GOP lawmakers.

Business lobbyists are already blitzing Congress, making their case about the costs of higher taxes.

“The last place that policymakers ought to look in trying to fix the fiscal situation is with business tax increases because those businesses are the ones that are creating jobs,” said Josh Bolten, head of the Business Roundtable, adding his group intends to spend eight figures fighting for lower taxes.

It’s a sign that next year’s debate over whether to extend major portions of the Tax Cuts and Jobs Act could be very different from the one that created it.

Back then, Republicans were primarily concerned the then-35 percent corporate rate was so much higher than in other countries that it put American firms at a competitive disadvantage. They had considered cutting it to 20 percent, as Trump is now proposing, and even to as little as 15 percent, before deciding that was too expensive and settling on 21 percent.

This time, the focus for lawmakers in both parties is different, as they try to prevent tax increases for millions of Americans, even as warning lights are blinking red over the deficit.

Lower tax rates, a bigger standard deduction, a larger child credit and a slew of other provisions affecting individual Americans are set to expire at the end of next year.

Extending everything in TCJA would cost $4 trillion. Even if lawmakers only re-up provisions benefiting people under $400,000, as the administration demands, the tab would still run more than $2 trillion over a decade.

At the same time, budget forecasters are warning the deficit this year will reach $2 trillion, despite low employment. And next year, the Congressional Budget Office predicts, annual interest payments on the debt will exceed $1 trillion for the first time.

The Biden administration says any tax agreement must not add to the deficit. Most Republicans are not going that far, but some say they need to do a better job containing costs this time around.

Though Trump would cut just a single percentage point off the corporate rate — a plan he floated earlier this month to the Business Roundtable — it would add billions to lawmakers’ budget headaches.

A one-point reduction would cost at least $130 billion, but that’s probably not all. It would also put a lot of pressure on lawmakers to reduce taxes on unincorporated “pass-through” businesses as well, so they don’t favor one over the other. And that could squeeze out other myriad priorities lawmakers hope to include.

Conversely, budget forecasters have been ratcheting up how much money could be brought in from a corporate rate hike, making it a tempting target for cost-conscious lawmakers. The old rule of thumb was that every percentage point increase generates $100 billion.

Then, in December 2022, forecasters kicked that up to $130 billion. They haven’t released a revised estimate, but it’s likely more now thanks to higher corporate profits.

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Compounding the challenge for corporate America: It has fewer friends on Capitol Hill.

Most of the Republicans who pushed TCJA into law have since retired, replaced by more populist-leaning members who have battled big business in recent years over everything from diversity programs to the 2021 Capitol Hill riots to socially conscious investing.

At the House Ways and Means Committee, former Chair Kevin Brady, a one-time chamber of commerce executive, has been replaced by Rep. Jason Smith (R-Mo.), who makes no secret of his skepticism about big business. It was Smith who warned last month that some of his Republican colleagues are ready to join Democrats in hiking the corporate tax, though he did not advocate that himself.

Over in the Senate Finance Committee, the business community had a reliable ally in since-retired Sen. Rob Portman (R-Ohio) — whose replacement, Republican J.D. Vance, recently teamed up with liberal Sen. Sheldon Whitehouse (D-R.I.) to propose raising taxes on corporate mergers.

Many Republicans are in the leave-it-alone camp when it comes to the corporate rate — neither seeking an increase nor a decrease.

“I am satisfied with it” at 21 percent, said Rep. Randy Feenstra (R-Iowa), a tax writer.

Rep. Adrian Smith (R-Neb.), another tax writer, definitely doesn’t want to increase the rate.

“I’m very concerned about undoing what we did that, I think, has been very productive,” he said.

Asked about Republicans’ appetitive for further reducing the rate, Smith was noncommittal, saying that’s something lawmakers could study.

Of course, big business will face far tougher sledding if Democrats win in November. For many of the party’s lawmakers, raising the corporate rate is a foregone conclusion, and only the beginning.

“Every Democrat thinks the 21 percent corporate rate is far lower than is necessary,” said Rep. Don Beyer (D-Va.), a tax writer. He says he’d put it at 27 percent or 28 percent.

Added Finance Chair Ron Wyden (D-Ore.): “Western civilization is not going to end if there’s some increase.”

Biden, who’d pin the corporate tax at 28 percent, has also proposed more than $1 trillion in other business tax increases, including quadrupling a new charge on stock buybacks, expanding a minimum tax on some companies and hiking levies on foreign profits.

Republicans could consider some of those as well.