White House advisers propose minimum corporate tax, fearing attacks on 2017 GOP law

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The idea, which is part of preliminary discussions and has not been officially approved, could try to blunt criticism from Democrats that the GOP tax law allowed many large corporations to completely eliminate their federal taxes on business. companies. The plan could also help generate revenue that could be used to offset the impact of new middle-class tax cuts. Trump has promised to roll out a middle-class tax plan ahead of the 2020 presidential election.

The 2017 tax law lowered the corporate tax rate from 35% to 21%, but allowed companies to continue to use loopholes and tax breaks to lower their taxes even further. The tax law also eliminated the alternative minimum corporate tax, which was supposed to prevent companies from abusing deductions to avoid paying taxes.

Democrats and critics have said the tax cut is heavily skewed toward the wealthy and businesses, and the component that benefits households is set to expire in a few years. Some advisers to the president fear a political backlash over reports that some companies have paid little or no taxes since the law was enacted, an issue seized upon by some of Trump’s top presidential rivals.

The president’s outside advisers and White House officials have strongly warned that the process is in the preliminary stages and no decision has been made on the shape of a new package of tax cuts. Many of them spoke on condition of anonymity because they were not authorized to discuss internal deliberations.

“Trump has been very clear that he wants this to be really targeted for people in the middle,” said a person involved in the effort. “They’re looking for ideas and looking at what we can do to offset some of these things.”

The proposed minimum corporate tax could be interpreted by critics as an extraordinary admission by the White House that its 2017 tax cut went too far in cutting corporate rates.

The potential tax plan also underscores the enormous political challenges the White House will face in crafting a second tax cut proposal in time for the 2020 election, in part because the White House appears to have overestimated the economic benefits that would result from the 2017 election. right.

Outside White House advisers discussed building a $1 trillion tax cut package for the middle class by lowering rates and expanding tax-free savings accounts. They also discussed putting limits on the amount of state and local tax payments that businesses can deduct from their federal taxes, people involved in the talks said.

“The White House is considering many proposals that will benefit the middle class and working Americans and promote long-term economic growth,” White House spokesman Judd Deere said.

Limiting state and local tax breaks for businesses would pick up on one of the hardest fights of the 2017 tax cut, which capped how much individual households could deduct in federal taxes from their state and local taxes. This provision, known as the “SALT” cap, has been attacked as an attempt by Trump to raise funds disproportionately by taxing Democratic-led states with higher state and local tax burdens, such as California, New Jersey and New York.

“It’s the blue states that tend to have higher corporate tax rates, so they would be hit the hardest by a SALT cap for businesses,” said former Obama administration economist Ernie Tedeschi.

After the adoption of the tax law, the payment of corporation tax was about 40% lower than expected before any changes, according to the Brookings Institution, a Washington think tank. The White House has said the tax cuts will lead to an increase in new business investment, but business investment has contracted much of the past year. The White House also predicted tax cuts would help the economy grow 3% in 2019, but it grew 2.3% instead.

The 2017 tax cut is expected to increase the national debt by nearly $2 trillion over 10 years, according to nonpartisan estimates, prompting criticism of Trump for his budget profligacy as the annual deficit tops 1 trillion dollars.

Opponents of the tax law such as presidential candidate Sen. Bernie Sanders (I-Vt.) have attacked the GOP and multibillion-dollar corporations for allegedly paying $0 in federal taxes under the new law. Ninety-one Fortune 500 companies paid $0 in federal corporate taxes in 2018, more than double the amount in previous years, according to a left-leaning political group, though experts warn it’s difficult to make accurate comparisons with previous years.

The average federal tax rate for the nation’s 400 largest corporations was around 11% in 2018, the lowest rate since at least 1984 and a sharp drop from the average rate of 21% paid between 2008 and 2015. according to the Institute on Taxation and Economic Policy. .

Businesses have defended their low corporate tax burden, with some noting that they are deferring tax payments to future years or using new deductions to encourage new business investment. Republicans and conservative tax experts also say the corporate tax cut has helped spur economic growth and significantly increased business investment in the economy. The economy grew 2.9% in 2018, a three-year high.

“Americans are going back to work and consumers have more money in their pockets. President Trump’s economic agenda is creating more jobs and higher wages for American workers,” Treasury Secretary Steven Mnuchin said. said in a statement last year.

Larry Kudlow, the White House economic adviser leading the tax effort, said the proposal would likely be released in September, though officials have been promising a new tax cut plan since 2018 and have not not yet provided concrete details.

White House advisers have also launched expanded tax-free savings accounts in the “2.0” package to increase the amount of money available to low- and middle-income households. Kudlow told the New York Post this month that the package could include “universal savings accounts” that would allow Americans to make more investments tax-free, although details remain vague.

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