Will the Final Tax Bill Have a Higher Corporate Tax?
Trump suggests higher corporate tax
The 20% corporate tax rate has been making the headlines, even though it’s still just a proposal. But talks over the tax bill are heating up as President Trump pushes to force the new bill to completion by the end of 2017.
House Republicans released the first tax reform framework at the end of September 2017, but the Senate didn’t vote on its amended version until December 2, 2017. Then, only hours after the Senate’s amendments were released, Trump suggested raising the maximum corporate tax rate to 22%.
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This suggestion came as a shock because Trump was the one who wanted to reduce the maximum corporate tax rate to 15%, but later calculations showed that it could only go as low as 20%. The idea behind lowering corporate tax to 20% was to put more money in the hands of businesses so they can invest, grow, and possibly increase jobs and wages. However, reports by analysts showed that the bill would instead increase the deficit by more than $1 trillion.
Trump’s suggestion of a two-percentage-point increase in the maximum corporate tax rate is aimed at raising $200 billion in government revenues. This could address some senators’ concerns that the tax bill doesn’t do much for low-income families.
A higher corporate tax might complicate things
The House and Senate versions of tax reform are different, and both houses of Congress are moving fast to sort through the differences and prepare a final bill before the end of 2017. They’ve formed a conference committee that would prepare a final report, which is expected to be presented for a vote by December 22, 2017.
But the White House is pushing Congress to accelerate the process and complete it within the week. With such a stringent deadline, Trump’s suggestion of a higher corporate tax rate is likely only adding to the bill’s many complications.
Will the House and Senate support Trump’s suggestion?
Both the House and Senate strongly favor the 20% maximum corporate tax rate. The Senate even rejected a proposal by the Republicans to increase the tax rate to 21% in exchange for higher tax breaks for working-class families. It remains to be seen how the President’s desire for a higher corporate tax rate will impact the House and Senate.
To be sure, a corporate tax rate higher than 20% would likely not be welcomed by the semiconductor industry (SMH), as they already have a lower effective tax rate. In the next part, we’ll analyze the tax treatment of overseas earnings proposed by the Senate tax bill and its impact on companies like Intel (INTC), Qualcomm (QCOM), and Micron (MU), which have global operations.