Restrict Current Breaks
One of the most revenue-rich maneuvers would be to dial back the long list of tax preferences already embedded in the tax code, including write-offs for buildings and equipment, deductions for employee stock compensation and tax credits for research and development. Eliminating those tax breaks could easily cover the $540 billion corporate-tax hole, but are so ingrained in the U.S. tax system it would be a political non-starter.
Even paring back some of the benefits creates some problems, said Marc Gerson, a former House tax aide who now chairs the tax department at law firm Miller & Chevalier. Curbing them picks winners and losers based on industry, whereas an across-the-board corporate-rate increase is a more evenly distributed tax hike, he said.
“There’s the potential for uneven results and it’s really challenging,” Gerson said.
For example, restricting the R&D credit would greatly harm manufacturers, but have little effect on financial services, which generally don’t qualify for the break on the same scale.
Democrats should also be cognizant that drafting nuanced tax policy quickly can lead to problems, said Garrett Watson, a senior policy analyst at the Tax Foundation, a right-leaning think tank. Republicans learned this in 2017 as they wrote their tax-cut bill facing a similar deadline crunch—and later found mistakes once the bill was already law.
“There’s the risk things look good now” but then lawmakers “in a few months realize there’s drafting error or an unintended consequence,” Watson said. “That’s a possibility with new and complicated policies.”
—With assistance from Erik Wasson.
This article was provided by Bloomberg News.