Good morning.
I was in Washington Friday, where I was told in no uncertain terms that the Trump team is planning to push a 1986-style tax reform— closing loopholes as well as cutting rates—and not just a 1981-style tax cut— justified by boosting economic growth. (If you haven’t read the President’s comments about “pump-priming” in The Economist— at one point, he suggests he invented the term—you should do so here.)
In fact, the administration seems to be pursuing a hybrid—part tax reform, part tax cut. But let’s focus on reform for a moment. The thing about tax reform is that it creates losers as well as winners. And what makes it so difficult politically is that the losers have a tendency to make more noise than the winners.
On the individual side, the administration already has identified the big losers—people who live in high-tax states like New York and California, who would lose their state and local tax deduction. Those are mostly blue states, with Democratic Senators who won’t support the President’s plan anyway, so they can scream away.
But things get more interesting on the corporate side. If the plan cuts the corporate tax rate in half and pays for it by closing loopholes, a lot of companies that now pay effective tax rates below that may see their tax bills go up. We don’t have full details yet, but the losers probably will include energy companies, utilities and heavy industry, which use a variety of special tax breaks to lower their bills. (For a sense of potential losers, check out this report on 18 big companies that effectively pay no taxes.) Will those companies be willing to accept the hit, in the name of moving to a saner corporate tax system?
We will see. Already, the business community is fighting like pit bulls over the House-proposed Border Adjustment Tax, which is favored by manufacturers and opposed by retailers. My email box is filled with nasty missives from a retailer-backed group called “Americans for Affordable Products,” which among other things has attacked GE CEO Jeff Immelt for “hypocrisy” and “mostly false” comments about the BAT.
The BAT seems likely to die. But fights over oil and gas depletion allowances and various investment tax breaks will be no less intense. If the business community really wants corporate tax reform, it is going to have to figure out a way to put its collective interest ahead of parochial interests. No sign of that yet.
I talked Friday with Dow CEO Andrew Liveris, who has become one of the administration’s closest business allies (and who last week announced major new job-creating investments in the U.S.). Tax reform, along with deregulation, is the big payoff for business, he says: “It’s huge. This is like all our Christmases coming at once.” He recognizes the business community still has some work to do to corral its unruly troops, but he is optimistic they will do so. “I’m not starry-eyed,” he says, “but I’m optimistic.”
Immelt, speaking to my colleague Susie Gharib recently, sounded less so. “We’re not counting on it happening.”