An expert on the economy and tax policy is criticizing a Republican effort in Congress to advance a measure that would exacerbate the U.S. debt ratio by cutting taxes on wealthy corporations.
Jean Ross, a Senior Fellow for economic policy at the Center for American Progress, is critical of a House Resolution 3938, which would delay three provisions in the 2017 Tax Cuts and Jobs Act (TCJA) to modestly. The Trump-era TCJA "gave massive tax cuts to corporations by slashing the corporate tax rate from 35 percent to 21 percent and made other changes that favored the wealthy," Ross wrote in the article "House Bill Would Slash Business Taxes and Undermine Efforts To Stem Profit Shifting," published June 20.
H.R. 3938, authored by Ways and Means Committee Chairman Jason Smith (R-Mo.), would reverse three modest revenue-raising provisions contained in TCJA as a way to get it past the budget reconciliation process. The provisions combined would offset approximately 4.25 percentage points of the 14-percentage point reduction in corporate tax rates provided by the TCJA, according to the article.
The TCJA set a limit on interest deductions large businesses could make beginning in 2022 to prevent excessive leverage, and the measure was expected to generate $253.4 billion from Fiscal Year 2018 through FY 2027. Smith's bill would extend bonus depreciation and lift limits on interest deductions through 2025, according to the article.
“To date, there is little evidence that the 2017 corporate tax changes boosted investment or employment,” Ross states in a June 28 CAP press release. "Congress should reverse, not expand, massive tax cuts that have failed to deliver promised economic benefits and that have put upward pressure on the federal debt."
Ross noted the Republican proposal would lift the limits and remove the roadblock that currently keep companies from amassing too much debt, a change that would benefit private equity firms that feed off bankruptcy risks for firms they acquire. She noted it also would extend bonus depreciation to provide for the immediate deduction of new equipment, a measure included in the TCJA that has ushered in a drop in the corporate tax payments, with opponents pointing out the boost in interest deductions and more expensing of investments would serve as a double tip into the tax benefit pool.
Moreover, Ross wrote in the article that the analysis by ITEP would provide 58% of the tax benefits to the wealthiest 1% of households, with the lowest 20% getting just 1% of the benefit, increasing the divide in income inequity. The analysis also found a third of the total cost of the tax cuts would benefit foreign investors who own U.S. corporate stock, according to the article.
The bill also proposes changes that opponents say could unsettle the global minimum tax set under key talks, and Ross wrote that with increased taxes on investments domestically for individuals and companies involved in the OECD deal, the bill would take action to prevent profit shifting and ensure equitable taxation.
Ross also explained in the article that opponents of the proposal cuts across wider global support and throws up hurdles to battle tax avoidance, with Congress now facing key decisions on tax policy. She pointed out the revenues lost from the proposal — forecast to top $400 billion through 2027 — would rival the spending from caps set up on discretionary finding in the recent debt limit deal.
“Congress should reverse, not expand, massive tax cuts that have failed to deliver promised economic benefits and that have put upward pressure on the federal debt,” Ross concluded in the article. “Congress should not enact tax cuts while slashing spending for investments—such as childcare, medical research, and education—that are fundamental to a healthy economy.”
