Capitol Hill is pushing back against a report that the White House is seeking to cut the corporate tax rate from 35 percent to 15 percent, raising concerns that it would add trillions of dollars to the national debt, reports CNBC.
President Donald Trump is scheduled to unveil his broad principles for tax reform on Wednesday. According to The Wall Street Journal, the announcement is expected to include the 15 percent corporate rate that Trump proposed during the campaign. The Tax Policy Center estimates the move would reduce federal revenues by more than $2.4 trillion.
"I don't know if he can get away with it," Sen. Orrin Hatch, chairman of the powerful Finance Committee, told reporters Monday.
Republicans have been planning to use a parliamentary process known as reconciliation to pass a tax reform bill without support from Democrats. However, they cannot use the maneuver if the bill adds to the deficit after 10 years.
Treasury Secretary Steven Mnuchin has repeatedly pledged that the administration's tax plan will pay for itself. He has not indicated support for any ways to raise revenue, such as the controversial border adjustment tax. Instead, Mnuchin has emphasized that the White House proposal will generate economic growth, which he argues should in turn lead to higher tax revenue from rising wages, higher employment and strong business sales.
"You could have as high as a $2 trillion difference in revenues depending on what you think is going to be the growth function," Mnuchin said at a speech in Washington last week. "The plan will pay for itself with growth."
The administration has said it hopes to spur economic growth of 3 percent, though Trump floated figures as high as 6 percent. The Congressional Budget Office estimates over the next decade range between 3 and 4 percent — a strong showing, but unlikely to be enough to offset such a dramatic reduction in the corporate rate, analysts say.
To comply with the rules around reconciliation, the White House could make the tax cuts temporary, letting them expire after 10 years in order to avoid increasing the deficit in the long term. However, House Speaker Paul Ryan's office threw cold water on that idea. A senior aide pointed out that simply cutting the corporate rate without changing other parts of the tax code would allow businesses to carry forward tax credits that could be used a decade later — ultimately adding to the deficit anyway.
In remarks at the Institute of International Finance last week, one of Ryan's senior tax writers called the prospect of a temporary business tax cut a "magic unicorn running around."
"Not only can that not pass Congress, it cannot even begin to move through Congress," said George Callas, Ryan's senior tax counsel. "This is something that actually cannot be done."
Trump is slated to meet with Mnuchin during a closed-door meeting in the Oval Office on Tuesday afternoon. Mnuchin and National Economic Council Director Gary Cohn will then head to Capitol Hill to meet with Ryan and Hatch, along with House Ways and Means Chairman Kevin Brady and Senate Majority Leader Mitch McConnell on tax reform.