Tax Experts Caution Senate on Cuts for Corporations

WASHINGTON (CN) – Reforms to the corporate tax system could benefit the U.S. economy but lawmakers should consider all possible effects before slashing rates, experts told senators Tuesday.

“Properly designed, tax reform can spur overall job creation, encourage more robust business expansion, improve the standard of living for all Americans and result in sustainable GDP increase,” Jeffrey DeBoer, the CEO of the Real Estate Roundtable, told the Senate Finance Committee this afternoon.

The hearing before the Finance Committee on Tuesday was the second in a series of hearings on tax reform, a topic that has gained significant momentum on Capitol Hill after the Trump administration made it a priority following the collapse of its push to repeal the federal health care law.

While Tuesday’s hearing focused on rewriting tax laws for businesses of all kinds, the committee last week heard testimony about possible changes to the tax code for individuals.

The advice given by tax experts touched on a variety of topics, including a familiar proposal to cut the main corporate tax rate, making it more competitive with those of other countries. In a more specific suggestion, one expert said the country should allow corporations to deduct any dividends paid to shareholders from their taxes.

Cautioning lawmakers against focusing rate cuts on particular types of businesses, the experts instead advocated for what Troy Lewis with the American Institute of Certified Public Accountants called a “holistic” approach. 

Where the experts differed was exactly how much specific changes to the corporate tax code would impact the economy.

Scott Hodge, the president of the Washington, D.C., think tank the Tax Foundation, said corporate tax reform would be a dramatic boon to the economy. He called for lawmakers to cut down the corporate rate 15 points to 20 percent, a level still higher that what the Trump administration has floated.

Hodge said cutting corporate tax rates would lower the incentives for businesses to engage in corporate inversions, a practice in which a company moves for tax purposes to a lower-tax country while keeping most of its business in its original home. He also encouraged lawmakers to make whatever changes they land on permanent to foster stability.

“The most important thing this administration and Congress can do to boost economic growth, lift wages, create jobs and make the U.S. economy more competitive globally is overhaul our business tax system,” Hodge told the committee.

But Donald Marron, a fellow at the Urban Institute and Urban-Brookings Tax Police Center, pulled back on that forecast slightly, telling lawmakers to be “realistic” about the overall impact that business-tax reform would have on the economy.

Marron said the bulk of business-tax responsibility falls on the rich, and that financing any cuts to business taxes at the expense of the deficit would likely swallow up any benefit such policy would have on the economy.

This divide extended to the lawmakers sitting across the hearing room from the witnesses. Committee Chair Sen. Orrin Hatch described the opportunity to reform the tax code as central to the goal of boosting economic growth and creating jobs.

“As I noted in our hearing last week,” the Utah Republican said, “virtually all of our current tax-reform ideas are aimed squarely at helping the middle class as well as low-income families. Our chief goals, particularly in business tax reform, are to increase economic growth, create new jobs, grow wages for the employees of both large and small businesses, expand opportunities for all Americans and improve standards of living for everyone in the United States.”

Democrats, meanwhile, were not keen on the suggestion of cutting the corporate tax rate. Oregon Sen. Ron Wyden, the committee’s top Democrat and a frequent critic of Republican tax proposals, said at the hearing that cutting the rate without closing loopholes that allow many businesses to avoid paying the full corporate rate would be a “surefire way to heap an even heavier burden on the middle class.”

Sen. Tom Carper, D-Del., was similarly skeptical of the suggestions to dramatically cut the tax rate, arguing that past attempts to do so have increased the deficit and benefitted the wealthy.

“There’s a saying that the third time’s the charm,” Carper said at the hearing. “I’m not so sure the first two times were charms, and I would have us be careful about going down this road again.”

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