WASHINGTON - A new Joint Committee on Taxation analysis shows that eliminating every corporate tax credit and deduction would generate only enough savings to reduce the corporate tax rate to 28 percent, well short of the 25 percent proposal Republicans have put forward. Those cuts include numerous credits and deductions vital to encouraging domestic job creation. The JCT report, prepared at the request of Ways and Means Ranking Member Sander Levin (D-MI), raises questions about what else Republicans plan to cut to pay for such a dramatic rate reduction for corporations, or whether they will use budget ploys such as “dynamic scoring."
JCT estimates that eliminating all corporate tax expenditures would only finance reducing the corporate rate from 35 percent to 28 percent, and would cost $960 billion over 10 years.
LEVIN: “The Republican tax plan would require wiping out every provision in our tax code that encourages domestic job creation, investment and innovation - and they are still 3 percent short of their goal. Will that revenue come from individuals or from small businesses? Or will Republicans try to use budget ploys such as so-called ‘dynamic scoring’ to attempt to make up the difference? This analysis highlights the need to take the tax reform debate beyond generalities and look at the disturbing implications of what is being proposed."
KEY POINTS:
* The lowest revenue-neutral rate that can be achieved by repealing all tax expenditures for C corporations is 28 percent.
* To finance a reduction in the corporate rate to 28 percent would require the repeal of every corporate tax expenditure, including:
o Accelerated Depreciation
o Deduction for Domestic Production Activities
o R&D Credit and Expensing of R&D Expenditures
o All Incentives for Renewable Energy
o Low Income Housing Tax Credit
o Charitable Deduction for Corporations
o LIFO
* If tax expenditures for pass-through entities (S corporations, partnerships and sole proprietorships) were repealed as well, an additional $304 billion would be raised. Those entities would then face an additional $304 billion in tax liability.
* Budget ploys like dynamic scoring are not likely to make up the difference between 28 percent and the Republican goal of a 25 percent rate. A 2007 study by the Bush Treasury Department concluded: “the combined policy of base broadening and lowering the business tax rate to 28 percent might well have little or no effect on the level of real output in the long run because the economic gain from the lower corporate tax rate may well be largely offset by the economic cost of eliminating accelerated depreciation."
* This analysis assumes no transition relief for repealed provisions, even for the repeal of longstanding provisions.
