Business

Difficult to cut U.S. corporate tax rate below 26 percent: study

Difficult to cut U.S. corporate tax rate below 26 percent: study
FILE PHOTO: Trump speaks at the 9/11 remembrance ceremony at the Pentagon in Arlington. Photo: Reuters
Published: 5:50 AM, September 14, 2017
Updated: 6:30 AM, September 14, 2017

WASHINGTON - U.S. President Donald Trump and Republicans in Congress would have a hard time slashing the corporate tax rate to below 26 percent, even if they eliminated nearly every business tax preference, according to a study released on Wednesday.

The analysis by the Tax Policy Center, a nonpartisan think tank, found Republicans might have to expand the federal budget deficit to cut the corporate rate to Trump's proposed 15 percent or to the 23 percent level sought by leading tax policymakers from Congress and the administration.

The corporate income tax rate is now 35 percent, although many companies pay far less than that thanks to abundant loopholes.

"There's a lower boundary on this and it's much higher than what the president and congressional Republicans say," said Howard Gleckman, a senior fellow at the center.

"The most likely outcome is that they're not going to reduce corporate taxes as much as they'd like to," he said.

Republicans have vowed to slash business tax rates, saying it would boost economic growth and help create jobs.

Eliminating tax breaks are a main focus of closed-door negotiations on Capitol Hill and in the White House.

But no policymakers have gone as far as the Tax Policy Center did in its study, measuring the impact of throwing out hundreds of tax breaks, including subsidies for research, alternative energy, fossil fuels and domestic manufacturing.

“In a revenue-neutral bill, Congress can’t get the rate below 26 percent even if it eliminates nearly every corporate tax expenditure,” Gleckman said in a blog posting accompanying the study.

White House officials and conservatives in Congress, including Senator Ted Cruz, have called for deficit-funded tax cuts as a way to spur economic growth.

But analysts warn that expanding the deficit would undermine economic growth by raising the federal debt burden and forcing interest rates higher.

Gleckman said policymakers could pay for tax cuts by finding new sources of revenue to compensate for lower rates, rather than expanding the deficit. But Republicans have already rejected revenue-raising options, including a border adjustment import tax and a carbon tax.

The study was funded by the nonprofit Peter G. Peterson Foundation. REUTERS