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The GOP Establishment Is About To Blow-Up The Pro-Growth Tax Plan

The Washington Post’s Jeff Stein reports that lawmakers negotiating the final version of the GOP tax reform legislation have considered raising the corporate rate to 22 percent, raising new revenue that they would use to offset other changes they plan to make in the final package.

This would be one of the dumbest things they could do and would almost certainly guarantee a difficult 2018 White flag Congressmid-term election for the GOP.

Last Wednesday, the Senate voted to send the tax bill to conference, where House and Senate lawmakers are attempting to craft a final package that can pass both chambers.

An increase of two percentage points in the corporate tax would reduce the bill’s projected GDP growth by 0.3 percentage points, according to the Tax Foundation, that would lead the GOP plan to create 60,000 fewer jobs, the Tax Foundation said according to Stein.

“The permanent corporate rate cut to 20 percent is the most growth-producing provision in either of the two plans,” wrote Tax Foundation President Scott A. Hodge. “The economic consequences of scaling that provision back should not be dismissed easily.”

Senate Finance Committee Chairman Orrin G. Hatch (R-Utah) said last week that he opposed raising the rate to 22 percent. “Not as far as I’m concerned,” he said reported Stein. “It’s still 20.”

Other Republican senators have also come out strongly against scaling back the corporate tax cut, according to Stein, even while acknowledging that the bill has problems that had to be resolved.

“We’re far better off, for a lot of reasons, if we can hold it to 20, but we do have some challenges that we’ve got to work through,” Sen. Patrick J. Toomey (R-Pa.) said in Stein’s article.

When state and local taxes are added, the federal corporate income tax rate tops out near 40 percent, making ours the highest statutory rate in the developed world. Yet the amount of revenue the federal government collects from corporate taxation is only 2 percent of GDP, one of the lowest collection rates among developed countries wrote John Goodman, president of the Goodman Institute for Public Policy Research, in an op-ed for the Dallas Morning News.

We collect the least taxes with the most pain. That may be one reason why the U.S. is losing in global competition. In 1960, 17 of the 20 largest global companies were headquartered in the U.S. By 2015, only six were headquartered here, noted Goodman.

Goodman says the bottom-line best estimate so far: Lowering the corporate tax rate to 20 percent will prompt an inflow of capital on the order of $5 trillion to $6 trillion, and the resulting investment will raise wage income for the average family by $3,500 a year.

We agree with John Goodman and our friends at the Tax Foundation, but there are many more pro-growth elements in the bill that must be protected.

The New York Times also reports that for the first time, the United States is proposing to effectively levy a global minimum tax of 10 percent, which would apply to income that high-profit subsidiaries of American companies earn anywhere in the world.

The effort is aimed at preventing companies from shifting profits abroad and encouraging the repatriation of profits earned overseas. Those profits are currently not taxed until they are returned to the United States, giving companies an incentive to keep that money offshore since they would be taxed at the current corporate tax rate of 35 percent.

The White House has said more than $2.5 trillion in American profits are held offshore, other estimates peg the number at $2 trillion.

The bill would offer a one-time 12 percent tax incentive rate on liquid assets held overseas, like cash. The tax, which is reduced from the current 35 percent tax rate, would be payable over eight years. For illiquid assets, like equipment or property, the tax rate would be 5 percent.

$2 trillion is a staggering sum in relationship to the main economic drivers of the American economy – small business – and in terms of big business it is also huge – it is almost the market value of Apple, Microsoft and Google combined.

In terms of capitalizing America’s largest employers, $2 trillion would capitalize Walmart (1.3 million jobs), HomeDepot (340,000 jobs) General Electric (305,000 jobs), Kroger (443,000 jobs), IBM (380,300 jobs) more than twice over.

Getting that money repatriated and invested in the US economy could be YUUUGE – to use one of President Trump’s favorite descriptors – in terms of creating new jobs.

“We are on the precipice of passing a fairer, flatter, simpler, more competitive tax code, one built for three percent-plus economic growth,” said Rep. Jeb Hensarling, Chairman of the House Financial Services Committee, and a longtime advocate of a profit repatriation tax incentive.

Let’s hope that Rep. Hensarling is right, and that in their usual rush to snatch defeat from the jaws of victory the Capitol Hill Republican leadership doesn’t blow it by embracing the Democrat’s class warfare ideas and stripping all of the pro-growth elements out of the bill.

We urge CHQ readers to call their Representative and Senators through the Toll-Free Capitol Switchboard at 1-866-220-0044. Tell them to lower the corporate tax rate to 20 percent, keep the special rate for repatriation at 12 percent and to keep the focus of the tax reform bill on job creation and economic growth, not class warfare.

CHQ Editor George Rasley served as Director of Communications for Rep. Jeb Hensarling (TX-5) Chairman of the House Financial Services Committee.

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