Senate GOP rejects House conservative pitch on corporate tax rates
House conservative proposals to raise corporate taxes to offset the cost of President-elect Trump’s tax package are going over like lead balloons in the Senate, where Republicans are warning their House counterparts to back off.
The Senate GOP argues that hiking corporate taxes could dampen economic activity, lead to foreign takeovers of U.S. corporations and result in job loss.
“Absolutely not,” Sen. Markwayne Mullin (R-Okla.) said of proposals to raise the corporate tax rate.
“We were trying to be competitive on the world stage when we dropped it to 21 percent,” he said. “To raise that is not the way to get an economy going.”
Some conservatives, notably Rep. Chip Roy (Texas), have floated the idea of raising the corporate tax rate by a few percentage points to ensure the budget reconciliation package Congress plans to pass later this year doesn’t add to the deficit.
More recently, the House Freedom Caucus has floated a proposal to offset the cost of raising the cap on state and local tax (SALT) deductions for individuals and families by restricting state and local tax deductions for corporations.
Mullin and other GOP senators are also pouring cold water on that idea.
“To offset SALT, we don’t raise corporate taxes to do that. That’s not how we do that. Corporate taxes is the people that employ individuals. It doesn’t just affect large corporations … 50 percent of those employed around the [United States] and 75 percent of those inside Oklahoma is employed by small corporations,” he said.
Roy said last year he would be open to raising the corporate tax rate from 21 percent to 25 percent to help pay for tax relief for individuals and small businesses.
The Texan told The Hill in an interview last week that corporate tax increases should be “on the table” as possible pay-fors to keep Trump’s legislation agenda from adding to the nation’s ballooning debt.
“I’m on the record as saying everything should be on the table, and I’m on the record of having said, ‘Why should we just allow corporate taxes to stay in place, or think about lowering them, if … we’re not doing what we need to do on the individual tax rate side or if we’re not balancing the budget or being deficit neutral?’” he said.
Some Republican senators say they are willing to listen to House colleagues who advocate for higher corporate taxes.
“Personally, I think in the Tax Cuts and Jobs Act we went overboard in terms of the tax relief we gave to [corporations],” Sen. Ron Johnson (R-Wis.) said, referring to the Trump tax-cut bill from 2017.
“The effective rate for large corporations now is 10.8 percent, for small corporations is 14.8 percent. When we started this in 2017, the effective rate was 21.8 percent. We were competitive with the OECD average back then,” he said. “There was a reason I was resistant to voting for that back then.
“I want a complete rethinking of our tax system,” added Johnson, who said the present system gives corporations an advantage over “95 percent of American businesses.”
But other Senate Republicans warn that raising corporate taxes will face strong opposition.
“There is an argument to be made that maybe we went too far [in cutting corporate taxes] in 2017, but I don’t know how Speaker [Mike] Johnson [R-La.] makes that work,” Sen. Thom Tillis (R-N.C.) said. “I don’t know how you get people to vote for a corporate tax increase, but that’s something he’ll have to deal with.”
Senate Republicans aren’t on board with raising the SALT cap generally, arguing that doing so requires low-tax states to subsidize what they call the “bad tax policies” of California, New Jersey, New York and other high-cost blue states.
“I’m going to try to get to ‘yes,’ but people need to understand it’s very personal to me on the SALT side,” said Tillis, who worked as Speaker of the North Carolina House to phase out SALT deductions in his home state.
“Everybody needs to understand what they’re advocating for is subsidizing bad tax policy in their states,” Tillis said of Republican lawmakers who want to increase how much constituents can deduct in state and local taxes.
“I understand politically why they’re doing it. … They’re saying, ‘Look, we’re a high-tax state. The legislature and the governor keep on taxing and taxing us. We need federal dollars from other states to subsidize us so it’s not as harmful,’” he said. “It better come with a lot of really good pro-growth policy to make me swallow, it because that is a bitter pill.”
Republican senators say that raising corporate taxes is going in the wrong direction.
“We’re in a competition with other countries to attract capital. Countries like Ireland and others have reduced their corporate tax rate and benefited tremendously,” said Sen. John Cornyn (R-Texas), a member of the Finance Committee.
The Texas senator argued that while low corporate taxes is good economic policy, allowing people in high-cost, typically Democratic states to deduct more of their state and local taxes is unfair to rest of the country.
“I realize that Speaker Johnson has got a problem with getting the votes for anything, and I know he’s going to have to deal with the SALT issue, but I don’t know why Texas taxpayers should have to subsidize these high-tax jurisdictions like New York and California, which is what raising the deduction would do,” he said.
“It’s going to be a Rubik's cube,” he said of the complex challenge Johnson faces in marshalling nearly his entire Republican caucus to support a tax package.
Johnson’s majority may be as small as one, two or three seats when the budget reconciliation bill finally comes to the House floor, which means just a few GOP lawmakers will be able to wield tremendous leverage over the outcome.
The razor-thin House majority has given extraordinary power to lawmakers calling for higher corporate taxes and a higher cap on SALT deductions.
Senate Republicans are trying to quash talk of raising corporate taxes before it gains more momentum in the Capitol.
“I’m not a guy who’s in favor of raising any tax rates,” Senate Republican Whip John Barrasso (Wyo.) said.