GOP’s 21% Corporate Tax Rate Locked In by Congressional Gridlock

(Bloomberg) -- The sharp divergence between Republicans and Democrats over the 21% corporate income tax rate was on display Tuesday at the House Ways and Means Committee as Democrats began making the case for a large increase should their party succeed in November’s elections.

Several Democratic presidential candidates -- including Senators Bernie Sanders, Elizabeth Warren, and former South Bend, Indiana, Mayor Pete Buttigieg -- propose pushing the rate as high as 35%, its level before a Republican Congress enacted a massive tax cut in 2017.

President Donald Trump has advocated for a rate as low as 15%, creating a 20 percentage point spread between leaders in the two parties.

That amounts to a win for the status quo, essentially locking in the Republicans’ 21% corporate rate for several more years unless Democrats sweep control of Congress and the White House.

“The corporate income tax falls short of what our country needs,” House Ways and Means Chairman Richard Neal, a Massachusetts Democrat, said at Tuesday’s hearing. “Corporations are paying less than ever, and corporate tax revenues are at their lowest level in history outside of a major recession.“

Acceptable Rates

The window of acceptability in each party has shifted in opposite directions.

Republicans tout their tax law as a key victory and are preparing to push for a second round of cuts if Trump keeps his job for another four years -- though that would be tricky unless the GOP also wins back the House. Democrats, eager to raise revenue for new social programs, want corporations to pay significantly more.

As recently as five years ago, Democrats and Republicans alike widely backed corporate tax rates in the mid-to-high 20s. President Barack Obama called for a 28% rate, while former House Ways and Means Chairman Dave Camp, a Republican who didn’t seek re-election in 2014, pushed for a 25% rate during his tenure.

Several centrist Democrats seeking their party’s 2020 presidential nomination are supporting rates in that former centrist ground. Former vice president Joe Biden and former New York City mayor Mike Bloomberg have both called for a 28% corporate rate, while Democratic Senator Amy Klobuchar backs a 25% rate. Bloomberg is the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News.

The two parties can’t even agree on how to read the data on corporate tax collections since the 21% rate took effect in 2018. Democrats point to data showing that corporate tax receipts have fallen in comparison to gross domestic product.

Percentage of GDP

The Joint Committee on Taxation projects that corporate income collection in 2019 will be about 1.1% of GDP, in line with 2018. The average corporate tax collection as a percentage of GDP for the previous five years was 1.7%, according to the nonpartisan congressional tax scorekeeper.

Republicans say the dollar amount collected rose in 2019 to about $230 billion, up from nearly $205 billion in 2018.

“Corporate taxes aren’t disappearing, they are growing – more than 12% last year,” Representative Kevin Brady, the top Republican on the Ways and Means Committee, said Tuesday. “Corporate revenues are set to rise over the next decade both in real dollars and as a percent of GDP,” he said, citing the Congressional Budget Office.

CBO has said the corporate tax law hasn’t greatly exceeded or fallen short of its projections.

“Our analysis of preliminary data suggests that total payments of that tax will be slightly smaller than we had projected,” Phill Swagel, the CBO director, said in a blog post this month. “Notwithstanding our revisions to the effect on corporate income tax revenues, the effects on the budget have seemed generally consistent with our expectations.”

To contact the reporter on this story: Laura Davison in Washington at ldavison4@bloomberg.net

To contact the editors responsible for this story: Joe Sobczyk at jsobczyk@bloomberg.net, Laurie Asséo

©2020 Bloomberg L.P.