US corporations and their supporters in Washington are pushing aggressively to roll back tax policies they once endorsed, in a move that could return hundreds of billions of dollars to some of America’s biggest companies.
As congressional negotiators attempt to keep the government funded past 19 January, an agreement is emerging that ties the corporate tax breaks to an increase in support for vulnerable American families – an effort to make the deal more palatable for Democrats.
Just six years ago the Business Roundtable, a lobbying group for CEOs of large US firms, described the Trump-era Tax Cuts and Jobs Act as “a remarkable, once-in-a-generation opportunity”. Now, the group is leading “a six-figure advocacy campaign” to roll back parts of it, according to Politico, and threatening that failing to secure new tax cuts will lead to “slower job creation, smaller wage increases and lower overall economic growth”.
An ad from the National Association of Manufacturers, another trade group, claims US companies are “investing billions into the economy” but warns that unless Congress cuts corporate taxes further, “we risk losing it all”. The organization, which in 2017 called the law “a grand slam”, predicts a million job losses over the next two years without additional tax breaks.
The non-partisan Committee for a Responsible Federal Budget estimates these tax cuts would add $650bn to the federal deficit over the next decade.
“It’s the classic, ‘We want to have our cake and eat it too,’” said Sarah Christopherson of Americans for Tax Fairness (ATF), an advocacy coalition. “Corporations are saying: ‘We want to keep every last one of those corporate tax cuts that we got [in 2017]. And also, we want you to double down and give us $600bn more.’”
‘Corporations are literally going wild over this’
The tax provisions that industry groups are now seeking to roll back were part of an accounting two-step that in 2017 helped congressional Republicans deliver Donald Trump’s signature legislative achievement: about $1.5tn in new tax cuts that overwhelmingly benefited corporations, wealthy Americans and foreign owners of US stocks.
“Corporations are literally going wild over this,” Trump said when he signed the bill.
Because so many of the law’s benefits were tilted toward people who were already wealthy and people who received income from the stock market rather than salaries or wages – two constituencies that are disproportionately white – the Trump tax cuts further exacerbated racial wealth disparities, according to independent reports.
The centerpiece of the law was a permanent reduction in corporate income taxes that saw the top rate owed by many of the world’s biggest companies plummet from 35% to 21% – an outcome “beyond their wildest dreams”, Christopherson said.
In practice, many corporations pay far less than 21%: in 2018, the year after the law went into effect, the average tax rate actually paid by “profitable large corporations” fell to 9%, according to the US Government Accountability Office. The non-profit Institute on Taxation and Economic Policy (Itep) found that 91 Fortune 500 companies – including Chevron, Starbucks and Amazon – paid zero federal income tax that year.
The three pieces of the tax code now in the crosshairs of corporate America were designed to help bring the official 10-year cost of the 2017 law below $1.5tn, which allowed Republicans in the Senate to pass the bill without any Democratic votes.
If today’s campaign succeeds, these “pay-fors” would be scaled back or eliminated entirely. Corporations would be free to deduct the entire amount of their research and “experimentation” expenses, as well as the full cost of some new equipment purchases, from their taxes immediately, instead of spreading out the deductions over time.
The non-partisan Congressional Budget Office forecasts that extending the latter policy – known as “bonus depreciation” – would cost about $325bn over the next decade, which “is more than the combined cost of universal pre-K and free community college tuition for 10 years”, said Christopherson. “You could do both of those things for less money than one of the corporate tax cuts.”
‘Why did you guys support the Trump tax law in the first place?’
The third provision that industry groups – particularly those representing debt-reliant private equity funds – are fighting to roll back is a more restrictive cap on the amount of interest firms can deduct from their taxable income each year.
Before the Trump tax cuts, the US tax code generally allowed companies to deduct the full amount of interest. Under the law, most still get this subsidy, though some of the country’s largest corporations might not be able to claim the entire amount in a single year.
In November, a large coalition of business groups, including the US Chamber, the NAM and the Business Roundtable, warned congressional leaders that allowing firms to lower their tax burdens by deducting more interest was necessary to “protect the US economy, and particularly small and medium-sized businesses, from damaging job losses that will be felt across the country”.
Yet most small businesses are already exempt from the interest deduction limitation because it only applies to companies that bring in more than $29m a year. (The cap, which the law set at $25m, is adjusted for inflation each year.)
Moreover, “these same lobbying outfits actually supported the law when it was enacted, which included these provisions that they now say are so detrimental to the economy,” said Itep’s Steve Wamhoff. “If you really thought it was that bad, why did you guys support the Trump tax law in the first place?”
Part of the rhetorical about-face might be explained by the fact that while the three tax policies became law in 2017, they only began to take effect over the past two years.
This delay gave companies the immediate benefit of a lower tax burden, while lowering the predicted cost of the Trump tax cuts. Because the law said that the other provisions would go into effect after a few years, congressional agencies were required to assume in their official calculations that they would indeed go into effect.
But experts told the Guardian there was an expectation that corporate America could keep that from happening.
One recent ad from the National Association of Manufacturers laments that “Congress has allowed essential tax provisions to lapse”, suggesting that the industry group never thought these tax provisions would go into effect in the first place. The US Chamber, meanwhile, calls the effort to roll back the three policies “tax extenders” – a term used by Washington DC policymakers and lobbyists to describe ostensibly temporary tax provisions that are routinely extended by Congress.
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The NAM did not return a request for comment.
In a statement emailed to the Guardian, the Business Roundtable said it “is urging Congress to restore the three expired pro-growth provisions, which include immediate research and development expensing, full expensing for purchases of equipment, machinery, and technology, and a more sensible business interest deduction”.
The US Chamber, meanwhile, calls the effort to roll back the three policies “tax extenders” – a term used by Washington policymakers and lobbyists to describe ostensibly temporary tax provisions that are routinely extended by Congress.
Former House speaker Paul Ryan, who led the tax cut push in 2017, indicated recently that this was precisely what Republicans anticipated. “We made temporary what we thought could get extended, and we made permanent what we thought might not get extended and what we wanted to keep permanent,” Ryan explained last fall.
“Large business interests … supported the package as a whole because it was, on net, delivering large, permanent tax cuts,” said Chye-Ching Huang, the executive director of the Tax Law Center at the New York University School of Law. “Pretty explicitly at the time, many lawmakers were already looking for ways to prevent … those other tax increases on companies from ever coming into full effect.”
‘The system is set up for big corporations to win’
The three tax policies targeted by corporations today are complex and obscure. Yet hidden in such complexity and obscurity are hundreds of billions of dollars, as well as fundamental questions of fairness and justice – whether, for instance, corporations should pay lower effective tax rates than some of the people they employ, or whether the tax code should treat investment income, which is more likely to be held by white Americans than Black Americans, more generously than income from salaries and wages.
Both biases were exacerbated by the Trump tax cuts, which “increased income, wealth, and racial disparities by virtue of their tilt towards already wealthy and high-income filers and large businesses”, Huang said. “People who already have resources are disproportionately white, while the folks that were largely left out of the law, of all races, had lower income – and also … because of those barriers to economic opportunity, were disproportionately likely to be people of color.”
This pattern of entrenching racial disparities risks repeating itself in corporations’ current lobbying campaign – in part, Huang said, because “large corporations and businesses, who have [a] very direct and large financial impact on the line, know how to have their voices heard” in the negotiations.
Over the coming months, observers anticipate that Congress will vote on a number of must-pass bills to keep the government funded. While any bill might serve as a vehicle for these three tax provisions, corporations are increasingly desperate to turn them into law quickly “because they want to make [the tax cuts] retroactive to the start of the [2023] calendar year”, said Christopherson. “The closer you get to when the IRS has to say, ‘No, this is the filing deadline’ … the more politically impossible it becomes to get the retroactivity that these corporations really care about.” (On Monday the IRS announced that the 2023 tax filing season would begin on 29 January.)
To secure Democratic votes for a legislative package that includes new corporate tax breaks, congressional negotiators are aiming to pair the business priorities with a tax policy designed to help a different, and far less politically connected, constituency.
The American Rescue Plan, a Covid relief package passed by the Democratic-led Congress in early 2021, included a one-year expansion of the size and accessibility of the federal child tax credit, which provides assistance to low-income families with children.
By the following year the credit had helped nearly 3 million children escape poverty –about 2 million more than would have without the expansion, according to the US Census Bureau. The impact was especially pronounced among families of color: The number of Black children in the United States living in poverty fell by 17% between 2009 and 2021.
But the year after the expansion of the credit was allowed to expire, child poverty in America doubled, disproportionately among Black and Hispanic children.
Combining the corporate tax cuts with an expansion of the child tax credit might yield an agreement with enough Democratic support to reach Joe Biden’s desk. But it also suggests that the only way Congress is prepared to help lower-income families is if some of the world’s most profitable corporations get additional tax relief of their own.
“Wealthy corporations and Republican lawmakers in Congress are holding the poorest children in this country hostage in exchange for billions in tax handouts,” Elizabeth Warren, the Democratic senator from Massachusetts, told the Guardian in a statement.
“Who benefits when corporations are able to pay lower taxes?” said Dorothy A Brown, a Georgetown Law professor and the author of The Whiteness of Wealth. “It’s not workers, because they’re not getting higher wages as a result of this. It’s shareholders. And who holds shareholder wealth? They’re largely rich, white Americans.”
A study published last January by the US treasury department found that white families claim 92% of the tax code’s preferential treatment for capital gains and dividends–sources of income that tend to rise alongside corporate profits – even though they constitute only two-thirds of American families.
“People who can afford lobbyists tend to be rich, white Americans; rich, white companies; rich, white shareholders … as opposed to working families who, one, can’t afford a lobbyist, and two, don’t have the time to pick up the phone and call their member of Congress – who might not take their call,” Brown said. “The system is set up for big corporations to win.”
