The 20% corporate tax rate, which is part of Trump’s tax reform has been well received by tax policy experts, and economists alike. However, the President of the National Taxpayers Union, Pete Sepp, is sounding the alarm about a new challenge.
National Taxpayers Union, together with Americans For Prosperity, Americans for Tax Reform, Club for Growth, and Freedom Partners, and an additional 26 organizations are warning that state corporate tax rates may be revised upwards by liberal legislatures, and effectively nullify the effect of Trump’s tax cut.
Sepp went on to explain how the state and local taxes would make cooperate tax rates high, hence it is essential to consider this 20% as 25%.
“Even if we are reducing this rate to 20% there is still effective state and local corporate tax rates to consider,” he had said during his conference call. “Our combined tax rate even with a 20% federal rate will still approach close to 25% when you factor in the state and local issue.”
“When you do that you then come to realize that at the end of the day a 20% corporate tax rate makes us just barely competitive with the average OECD rate, which is a little under 24%,” he further said.
This was seconded by the President of Americans for Tax Reforms, who added that a corporate tax that is as high as 20% should be considered as a compromise in itself.
The President of Americans for Tax Reforms – Norquist said, “Twenty was a compromise, we wanted to be at 15. As Pete Sepp points out if we really want to be competitive we need to be at 15 because a lot of state and local governments have income taxes. Fifteen is 20 and 20 is 25.”
He further discussed that the argument of decreasing the rate from 35 to 21 is an achievement in itself and should be considered good progress.
“Twenty is a number you can stand behind,” he said. “Twenty-one, 22—those are positions on the way back to 25.”
The 20% rate, as per Sepp, should be considered to be the only factor that keeps everything together for the growth in wages as it proves to be a help for both the businesses and families.
“If we want to see wage growth to help America’s families, a rate reduction on employers has to be part of the picture,” Sepp had said. “Even the congressional budget office, which is a known skeptic of the effects of tax reform, has acknowledged that at least one dollar out of every four in corporate rate reduction is passed through to wage earners. Other economists, more in the mainstream, put that at 50% or higher in terms of the amount passed through to wage earners. Reduce rates, broaden the base. When you broaden the base, you also simplify the system. Again, the reduction of the corporate tax rate to 20% is vitally important for all of these reasons.”
The vice-president for the Club of Growth added, “To them, they see the House passed 20%, the Senate passed 20%, they see that Trump is demanding 20%, so they should be frustrated and cynical as to why there is this discussion. The sad fact is that politicians are trying to save their little carve out or their little exemption that they want to keep in that unfortunately costs money in Washington that would otherwise go to pro- growth tax cuts like the corporate tax cut.”