Congressional tax writers want to offer U.S. companies an “unprecedented” way to slash their tax bills by investing in new equipment. But firms that stand to benefit most are saying no thanks, just give every company a bigger rate cut.
A lobbying group for companies including AT&T Inc., Verizon Communications Inc. and Intel Corp. -- all of which were among the biggest spenders on equipment and facilities over the past 12 months -- says a major cut to the current 35 percent corporate tax rate is the better way to drive economic growth.
“Making America great starts with the rate -- ideally in the low 20s,” said James Pinkerton, co-chair of the RATE Coalition, which has dozens of corporate members. “Every other tax decision is subordinate to what the rate is.”
Some economists disagree, arguing that “full expensing” -- letting companies write-off the cost of their capital spending immediately instead of doing it gradually over years -- would provide incentives for companies to invest, spurring growth more effectively than a simple rate cut. But the revenue cost of the change, which is estimated at more than $2 trillion over 10 years, makes it a tough sell politically.
“It’s a trade-off between lower rates and expensing” if you want tax cuts that don’t add to the deficit, said David Sites, a partner in international tax services at auditing firm Grant Thornton.
GOP leaders have been laying the groundwork to get tax legislation through the Senate without Democratic support. Under budget rules governing the process they’d use -- known as reconciliation -- any provisions that would add to the long-term deficit would have to be set to expire.
President Donald Trump, who has set a goal of 3 percent annual growth, is cool to the full expensing idea -- and very keen on achieving the lowest possible corporate tax rate. That, coupled with indifference from corporate America, may narrow the proposal’s chances of surviving in the framework for tax legislation that GOP leaders have promised to release later this month.
“On the expensing front, we do not believe expensing should be prioritized at the expense of rates,” Marc Short, White House director of legislative affairs, said Tuesday at an event sponsored by the Christian Science Monitor. “We’re more interested in prioritizing lower rates, we think that’s more important to actually getting the economy growing.”
A day later, Representative Mark Meadows, chairman of the conservative House Freedom Caucus, emerged from a House Republican tax meeting and said: “It sounds like they are not going to do full and immediate expensing.”
House Speaker Paul Ryan and the chief House tax writer, Kevin Brady, have been the proponents of expanded expensing -- they originally called for allowing full, immediate write-offs for capital spending last June.