The ambitious goal of President Donald Trump to reduce the corporate tax rate, which is currently at 35% to 15%, without even considering deficits, faces a fatal problem: the Senate rules.
The Taxation Joint Committee revealed that a huge cut to the corporate tax rate in just a span of 3 years will result in a deficit increase in 10 years. In this case, 35% is the current level, and the House Republicans propose to bring it down to 15-20%. These findings are from the private analysis that was requested by current House Speaker, Paul Ryan.
In order for the Republicans to move a tax cut through Congress, they are given two options. The first one is to find Democratic votes. The second is by going through reconciliation. Reconciliation is a budget process which would allow the Senate Republicans to get a bill approved with only 51 votes. In other words, there would be no need for the Democrat’s support because Republicans in the chamber currently control 52 seats. There is one caveat, however, and that is the fact that the tax bill won’t qualify for the majority vote because it will add to deficits in 10 years.
Democrats made it clear that they won’t give any support to a substantial tax rate cut if there is no sizable return. This leaves Republicans only one pathway which is the reconciliation.
The JCT analysis also concluded that a tax cut of 20% that’s to be set in place even for only a 3-year time period will result in non-negligible revenue loss. The loss will be in tax years following the set budget window. To put it in translation: the tax rate cut of President Donald Trump won’t even reach the reconciliation process.
Now, there are a couple of ways to alter the numbers in order to make the proposed cut of Pres. Trump feasible. The JCT projects that Republicans will add $6bn to the deficit once the budget window is reached. The number can just be made up in various ways. The lawmakers can simply finesse or massage the numbers, shift the set time window, or add a small level of off-set in order to address the expected increase.
However, that will be the best case scenario to which Republicans can hope for with the 3-year cut. The targeted beneficiaries which are the corporations will be unlikely to take advantage given their long-term planning windows. If lawmakers try to make the cuts up to 10 years, instead of three, the figure would become even more ominous.
The analysis done by JCT echoes something that senior tax counsel of Ryan, George Callas, said during the tax policy panel held last April. “You couldn’t make up a un-off set 3-year tax rate cut if it’s through reconciliation,” said Callas to the audience, “There are rules that prohibit it. It would be possible to have it at a 2-year time period. However, a 2-year tax rate cut does not have any growth effect.”