Anti-Tax Activists Demand 20% Corporate Rate: Tax Debate Update

(Bloomberg) -- House and Senate Republicans are working this week on compromise tax-overhaul legislation in an effort to send it to President Donald Trump by the end of the year. Here are the latest developments, updated throughout the day:

Anti-Tax Activists Demand 20% Corporate Rate (3:47 p.m.)

A quintet of conservative activists held a conference call Monday to demand that congressional Republicans negotiating a final tax package hold the line on a 20 percent corporate tax rate, and reject proposals to set it at 22 percent.

Chrissy Harbin of Americans For Prosperity -- which is backed by billionaire industrialist brothers Charles and David Koch -- lamented “ongoing efforts in both parties as well as special interests to hike the corporate tax rate as high as 22 percent,” saying that would “violate the intent of the unified framework” Republicans agreed to in the fall.

She described the rate as essential to economic growth and wage growth. President Donald Trump and many GOP lawmakers have been intent on setting the corporate rate at 20 percent, saying the U.S. has to stay competitive with other developed countries.

Grover Norquist of Americans For Tax Reform slammed Senator Marco Rubio of Florida for suggesting a roughly 1 point increase in the 20 percent rate in order to finance a larger child tax credit.

“What Rubio was doing is channeling his inner George H.W. Bush,” Norquist said, referring to the former Republican president who raised taxes in 1990 to help reduce the deficit. “When you open the door to raising a rate you’re not the only guy who gets to walk through," Norquist said, arguing that future congresses and presidents would seek to raise the rate if the party signals openness to it.

Notably, none of the five activists -- who also included Pete Sepp of the National Taxpayers Union, Andy Roth of Club For Growth and Nathan Nascimento of Freedom Partners -- committed to working to defeat an overall tax package if the corporate rate is set at 22 percent, compared to the current rate of 35 percent.

“We are going to consider these packages holistically and make a decision at that time,” Harbin said.

Trump sparked discussions about a higher rate on Dec. 2 when he backed off his red line of a 20 percent rate in the final package. Negotiators have considered using what could be an extra $200 billion in revenue from setting a higher rate of 22 percent to make up for additional costs expected in the final package, such as expanding the state and local property tax exemption of up to $10,000 to include income taxes.

Roth said he was “bewildered” by the talk of 22 percent, calling the 20 percent rate one of “the most pro-growth elements of this plan.”

On Friday, 26 conservative groups -- including the National Taxpayers Union and the Tea Party Patriots Citizens Fund -- sent a letter to House and Senate members who are working on the final legislation, urging them to stick with a 20 percent corporate rate. Lawmakers are trying to meld the differing tax bills that each chamber has passed.

What to Watch This Week:

• Economists’ responses to a one-page Treasury Department report on the Senate tax bill have so far criticized it for lacking analytical rigor. The report, released Monday morning, used Trump administration growth forecasts to assert that the Senate bill -- combined with other administration policies -- would produce $300 billion in additional revenue over 10 years. Other analyses have found the tax changes will increase deficits by as much as $1 trillion over the period.
• Developments on sticking points between the House and Senate tax bills, including the corporate rate, corporate AMT, estate tax, medical expense deductions and pass-through businesses.
• House Ways and Means Chairman Kevin Brady, who’s overseeing the House-Senate conference committee, will hold a press conference at 6 p.m. on Monday.
• Alabama voters on Tuesday will decide whether Republican Roy Moore or Democrat Doug Jones will join the Senate -- presumably later this month, in the absence of any protracted challenges or other ballot issues. Either outcome might spur Congress to try to stick to rough plans for voting on final legislation next week.

Here’s What Happened Last Week:

• The White House supports tweaking final tax legislation to appease lawmakers who want to let constituents deduct at least some state income taxes, according to National Economic Council Director Gary Cohn.
• Senator Susan Collins, a Maine Republican, said Sunday on CBS’s “Face the Nation” that she’d wait to see the final version of tax legislation before deciding how to vote. The Senate passed its tax bill, 51-49, with Bob Corker of Tennessee as the only Republican vote against it. Senate GOP leaders can afford to lose only one other Republican vote.
• House Ways and Means Chairman Kevin Brady told reporters that it might be “fair” to slow down the pace of changes to the U.S. system of international taxation.
• The White House continued to signal openness to a tax overhaul that features a corporate rate higher than 20 percent. “Fifteen is better than 20, 20 is better than 22 and 22 is better than what we have,” White House Press Secretary Sarah Huckabee Sanders said Thursday during a press briefing.
• Three polls found public opposition to the tax legislation, suggesting Republicans have work to do to achieve their goal of making the bill a centerpiece of the 2018 congressional campaigns.
• The European Commission is examining whether international tax provisions in the House and Senate bills that are aimed at preventing U.S. companies from shifting their profit into foreign jurisdictions would violate World Trade Organization rules, Bloomberg Tax reported.

To contact Bloomberg News staff for this story: Sahil Kapur in Washington at skapur39@bloomberg.net.

To contact the editors responsible for this story: Alexis Leondis at aleondis@bloomberg.net, John Voskuhl

©2017 Bloomberg L.P.

With assistance from Sahil Kapur