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Third Corporate Tax Rate Proposal Enters GOP Debate

‘We need to be bold on that’

Rep. Mark Meadows, R-N.C., leaves a meeting of the House Republican Conference in the Capitol on April 26, 2017. (Tom Williams/CQ Roll Call)
Rep. Mark Meadows, R-N.C., leaves a meeting of the House Republican Conference in the Capitol on April 26, 2017. (Tom Williams/CQ Roll Call)

House Freedom Caucus Chairman Mark Meadows on Wednesday called for cutting the corporate tax rate to 16 percent, presenting a third number for Republicans to consider as they seek to rewrite the tax code by year’s end.

President Donald Trump has called for a 15 percent corporate rate, while the House Republican leadership’s blueprint calls for 20 percent. The top federal corporate rate is now 35 percent. 

Meadows dropped the proposed 16 percent rate during a Freedom Caucus news conference calling for the House to stay in session during August unless lawmakers have passed an increase in the debt limit, finalized a health care overhaul and agreed on principles for a tax overhaul.

“We must agree on a set of principles where we start working on legislative text for tax reform,” the North Carolina Republican said. “We need to be bold on that.”

Specifically, Meadows said those principles should call for a 16 percent corporate rate and doubling the standard deduction for individual taxpayers.

Meadows told Roll Call after the news conference that a 16 percent corporate tax rate “helps with base erosion based on the tax rates of other countries.”

With that rate, he said, Republicans would need less stringent provisions in their tax plan designed to prevent base erosion, the result of fewer businesses paying U.S. taxes because of companies engaged in tax avoidance strategies. U.S.-based companies often move their operations overseas to countries with lower tax rates to avoid paying U.S. taxes.

“It gets you to a point where the investment in the United States becomes extremely attractive for multinational corporations,” Meadows said.

The House GOP tax plan backed by leadership calls for a border adjustment, a reversal from taxing exports to taxing imports, as the primary base erosion prevention provision. The border adjustment tax, or BAT, has drawn fire from conservatives, a host of companies and many key senators.

Former Freedom Caucus Chairman Jim Jordan has been especially critical of the border adjustment tax, saying the American people did not elect Republicans to institute a new tax on the economy.

Meadows’ proposed corporate rate seeks to mitigate the need for a sweeping base erosion prevention measure like the BAT.

But as House GOP leaders have refused to let go of their plans to institute the BAT, the Freedom Caucus has looked to other ways to ensure the tax gets removed from the conversation. They want the GOP to agree on the framework for a tax overhaul before proceeding with a budget resolution that would include reconciliation instructions needed to set up the legislative vehicle for the effort.

“We do believe that a budget needs to get done but it needs to get done in conjunction with a decision on tax reform,” Meadows said.

While budget reconciliation instructions cannot dictate policy, like whether or not the BAT should be included in an overhaul, Meadows said, “there’s a revenue number that comes with that.”

House GOP leaders have called for a revenue neutral tax overhaul, with the BAT expected to raise roughly $1 trillion and serve as one of the major offsets needed to reach that goal.

Meadows and his conservative colleagues have suggested that a tax overhaul does not need to be revenue neutral and wants reconciliation instructions to also include a target for mandatory savings cuts somewhere above $200 billion.

“We’re going to have to have both,” he said.

Together, the tax and mandatory savings could create a deficit neutral measure that would adhere to the Senate’s budget reconciliation rules for ensuring tax cuts are made permanent, but Meadows and other Freedom Caucus members have expressed openness to temporary tax cuts as a fallback plan.

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