Freedom Caucus Leader Calls for Big Corporate Tax Cut

By Richard Rubin Features Dow Jones Newswires

The leader of the most conservative faction of House Republicans outlined his principles for tax policy Wednesday, including a sharp reduction in the corporate tax rate that could be difficult to align with other GOP goals.

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Rep. Mark Meadows of North Carolina backed a corporate tax rate below 20% and expressed a willingness to produce significant overall tax cuts, even if the plan needs to be temporary or leads to less federal tax revenue.

"If we're going to do it, let's be bold about it," he said, warning that failure to act by Thanksgiving could imperil the whole effort given that 2018 is an election year.

His remarks pointed to the challenges the Republicans face as they set out on an ambitious agenda which also includes large and permanent middle-class tax cuts, which party leaders last week said was a top priority. The remarks, made to conservative activists and reporters, also indicated the party hasn't agreed yet on many key parameters for the tax effort.

Mr. Meadows is an important figure because he heads the House Freedom Caucus, a group that when united has enough clout inside the GOP to block a tax bill or the budget that will be a prerequisite for it.

He emphasized he wasn't drawing lines in the sand. He also said he wanted additional detail on the coming tax bill before agreeing to a budget.

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"There's common purpose on the idea of doing tax reform, lowering taxes and simplifying the tax code," said former Republican Rep. Charles Boustany of Louisiana, now a partner at the lobbying firm Capitol Counsel. "But when you get into details, there's going to be lots of divergence of opinion."

Democratic support for GOP tax policy is virtually nonexistent. All but three Senate Democrats signed their name to a letter sent to President Donald Trump and Republican leaders Tuesday that set out their conditions, including no tax cuts for the wealthiest U.S. households.

Republicans are trying to walk the same narrow legislative path they took in trying to pass a health-policy overhaul -- fast-track procedures known as reconciliation. Under reconciliation, a bill can pass the Senate on a simple-majority vote with no Democrats.

However, it has to meet certain conditions, crucially that it can't increase budget deficits outside the period of the budget, typically 10 years. That has some lawmakers looking at ways to comply with those rules, including making some of the tax cuts temporary.

Party leaders, however, have called for permanent tax changes because they argue that is what would most help businesses plan their investments.

Mr. Meadows said he was open to a budget window longer than 10 years and temporary tax cuts. He said that 15 years, for example, would give companies a significant amount of certainty for planning.

Mr. Meadows said he wants a corporate tax rate below 20%, similar to Mr. Trump's call for a 15% corporate tax rate. Mr. Meadows said some lawmakers have been discussing corporate tax rates as high as 27%, down from today's 35%.

Other House Republicans, including Speaker Paul Ryan of Wisconsin had proposed drawing revenue from a new tax regime called border adjustment -- taxing imports but not exports -- to raise $1 trillion over a decade and finance business tax cuts. But Mr. Ryan, senators and the administration ruled that out last week, amid opposition from retailers and others.

Mr. Meadows cheered the decision to drop border adjustment. But it could make it harder to achieve lower corporate tax rates. Morgan Stanley analysts said that, without border adjustment, the corporate tax rate would likely go only to between 25% and 28%.

One possible way to get the rate lower would be backing off of revenue neutrality, the idea that the new tax code should raise just as much money as the current one. Such a move would likely require policies to expire so it could be done through reconciliation.

"If you're taking dollars from here and putting [them] over there, you're not actually growing the economy," Mr. Meadows said.

Economists say revenue-neutral tax changes can promote growth by reducing the economic distortions caused by the tax code. But the politics can be messy.

"There are no ties in revenue-neutral tax reform, only winners and losers," said Mac Campbell, a former senior Democratic aide to the Senate Finance Committee who is now at the Lincoln Policy Group lobbying firm. "The Republicans have been promising everyone lower taxes, but it would be all but impossible to craft a revenue-neutral bill that keeps those promises."

Mr. Meadows said tax cuts would spur economic growth, which would in turn generate more revenue. He also talked about a "deficit-neutral" plan, which would use spending cuts, not tax changes, to offset tax cuts.

Republicans will have to make a decision on these points that get embodied in the budget, which itself must unite nearly every corner of the House and Senate GOP.

"It's not clear where all the different factions and groups are," Mr. Boustany said. "There's been nothing but mixed signals for quite some time coming from different members."

Write to Richard Rubin at richard.rubin@wsj.com

(END) Dow Jones Newswires

August 02, 2017 18:06 ET (22:06 GMT)