Is Trump’s proposal to slash the U.S. corporate tax rate down to 15% a possibility?
Donald Trump’s proposal to slash the U.S. corporate tax rate down to 15% from 35% is within the realm of possibility, the former chairman of the House Ways and Means Committee says — but realizing some of the president-elect’s plans could take years.
Dave Camp, who represented his Michigan district in the House of Representatives as a Republican for more than two decades, also told MarketWatch in an interview that he sees an opportunity for political consensus around repatriating overseas profits of U.S. corporations to fund infrastructure projects and to help overhaul the tax code.
“There’s general consensus, I think, among people of both parties that our tax code is broken,” said Camp, who left Congress in 2015 and is now senior policy adviser at PwC’s Washington national tax services practice. While Camp sounded optimistic about the prospects for wide-ranging tax reform under a Trump administration and a GOP-controlled Congress, the policy veteran sees a long process ahead. And, he said, progress will largely depend on Trump himself.
“I think we still need to see whether this is one of the top issues that President-elect Trump wants to pursue,” Camp said. “Is this No. 1, No. 2 or No. 3?”
Here is a lightly edited interview with Camp.
MarketWatch: I wanted first to start with corporate taxes, and also infrastructure. The president-elect has proposed public-private partnerships to spur infrastructure investment. At the same time, repatriation of overseas profits is another way infrastructure could be funded. So what do you see as the outlook in Congress for both these kinds of things?
Camp: Clearly the chances for both improve with the election of Donald Trump. He had a fairly detailed tax proposal while he was running for president of the United States; has made investment in infrastructure a key part of his campaign; so I think that both of those have a better chance of succeeding next year.
Having said that, they’re both more complicated than they might appear on the surface. There does seem to be general consensus that it’s important we allow companies the ability to bring back dollars that are stranded overseas. In the legislation that I proposed while I was chairman of the Ways and Means Committee, also known as H.R. 1, that was done to fund infrastructure — what we call highway spending also, very similar — for a number of years, as well as the kind of reform that we need to modernize our international tax system, as well as simplify our tax code.
There’s general consensus, I think, among people of both parties that our tax code is broken and that we do need to move forward in finding a way to bring us into the kind of tax system that many of our allies and countries that we compete with around the world have. There does seem to be the opportunity here to use the fact that dollars are going to come back from overseas, that will generate revenue both to partially fund infrastructure spending as well as begin the path toward tax reform.
MarketWatch: Infrastructure was not a key campaign issue for congressional Republicans. Do you think there’s a willingness on behalf of the House Republican leadership in particular to use repatriation for infrastructure?
Camp: I do think there’s an opportunity to find some political consensus on repatriating dollars stranded overseas for both tax reform and infrastructure purposes. There’s not enough there to do both of those things completely. I think it’s going to be very important that whatever is done in terms of repatriating dollars also includes some reform of our tax system. If you simply bring dollars back for more spending, you don’t see the kind of reform that we need to avoid having U.S. dollars stranded overseas, as they are now.
What’s also compelling around this issue is the fact that the European Union, through state aid cases, is seeing some of that revenue as potentially theirs.
MarketWatch: Everybody is very curious about when a big tax bill is going to happen. Kevin Brady, who now leads the Ways and Means Committee, said last week that Republicans are making progress on an overhaul they want to advance in the first 100 days of the Trump administration. So what kind of time frame are you telling your clients to prepare for?
Camp: A time frame is something that’s very difficult to predict. We don’t even know who the secretary of the Treasury is going to be, the president has not chosen his Cabinet, much less his team, and it’ll be important to see how quickly that process moves. The Congress has not organized yet. I think they’re doing so this week on the Republican side. Those are important procedural and staffing decisions that need to be made before we can really kind of assess that kind of thing.
There has been a lot of work done on tax reform over a number of years, going back to 2007, as well as the 2014 bill, H.R. 1; the corporate integration bill the Senate’s working on, as well as the House blueprint that was released well in advance of the election. There have been a number of efforts at designing tax reform.
I think we still need to see whether this is one of the top issues that President-elect Trump wants to pursue. Is this No. 1, No. 2 or No. 3? And what resources in terms of political capital will he put toward this effort? If those things do begin to align, I certainly think it will take a significant part of 2017 to try to define these complicated issues involving tax reform and really set on a path toward legislation.
It may not all happen at once. There may be stages. Even in H.R. 1, I phased things in over a period of time, so this may not be once and done. This may take a series of years. We often compare ourselves to the British, which have a 20% corporate tax rate compared to our 39% if you add in state taxes. They really began their reform effort in 2009. They’re now going to be phasing in a corporate tax rate in a couple of years of 17%.
The good news is that there has been a lot of work done. There does seem to be political consensus around the fact that we do need to do something to bring our system into the 21st century, to modernize our international and simplify our individual tax codes.
MarketWatch: The Trump plan and the House Republican plans are in agreement on lowering the statutory corporate rate, but they’re a little different: Trump would lower it to 15% from 35% and the House GOP would take it to 20%. Where do you see the number winding up, and how hard will Democrats fight on that?
Camp: It really will depend on what else they do in this reform. You can really hit whatever number you want to hit and still not impact the deficit significantly, because H.R.1 for the first time was a tax bill that was scored what we call dynamically. That meant that we used actually real-world economic effects to analyze changes in tax law. If you use a real-world analysis of what tax policy might do, you can actually lower the rate significantly and not impact the deficit.
But it really also depends on what other moving parts you have in any tax reform. The rate is certainly a big thing, it’s an important thing, but there may be other areas of tax law that will be impacted that could have an effect on that number.
I think to get to 15%, you’re probably going to have some impact on the deficit, but it depends on what other things are being done at the same time. It’s certainly doable. It just might mean there are some other trade-offs that would have to take place at the same time.
MarketWatch: The Tax Policy Center, you’ve probably seen, says that the Trump plan’s effect would be to reduce revenues by $6.2 trillion over 10 years. When you hear numbers like that, does that concern you? Can the Treasury afford a hit like that?
Camp: I look at the tax proposals as campaign documents and not as legislation. So the scores are in the ballpark and not necessarily as accurate as they will be when you actually have every “I” dotted and “T” crossed. I’m certainly not overly concerned about that, and frankly, his tax-reform proposal is more detailed than we usually get from presidential candidates. In that sense it was commendable that he tried to move the debate forward and engaged on the issue, which is something we desperately need as a country to do. He’s shown great leadership on that particular issue and I think that bodes well for the future.
It does appear, though, since that plan was released, that he’s really aligned himself very much with the House Republican blueprint. As you know, the scores from the Tax Policy Center of the House Republican blueprint are quite different than his campaign proposals. So it really will depend on where the Congress and the president work through these issues.
I think it’s very helpful that he named Reince Priebus chief of staff, because I think that has sent a signal that he plans to work with the Congress and we do have both House and Senate leadership who are interested in tax reform. Both Speaker Paul Ryan in helping develop the blueprint and Sen. Mitch McConnell has recently given interviews where he has said he would like to pursue tax reform in this Congress. It certainly means that the stars are aligning. It doesn’t mean they will align, but it means they are beginning to align on this critical issue.
MarketWatch: During the campaign, Hillary Clinton and Democrats really homed in on the benefits of the individual Trump plan for the wealthy. Do you think Trump and congressional Republicans risk losing middle-class voters if Democrats’ criticisms are proven right over time?
Camp: I do think what Americans want is a growing economy. They want an economy that means that they and their families have a shot at the American dream. We’ve had almost a decade of stagnant median incomes, and families are not seeing the benefits of this so-called recovery.
What both the Trump campaign plan and the House Republican blueprint, which are the most detailed plans out there at this time, emphasize is a growing economy, more jobs and higher wages for average families. It’s impossible to do all of that and not have investment. So what they’re trying to do is promote investment and growth. Those are certainly both substantive and political decisions that will be made as the process goes forward.