Tax Foundation Analyzes Potential Corporate Tax Hikes Impacting TCJA Competitiveness

What's Happening?

The Tax Cuts and Jobs Act (TCJA) of 2017 aimed to enhance U.S. economic competitiveness by implementing significant corporate tax reforms. These reforms included lowering the corporate tax rate and broadening the tax base, which led to increased capital investment and economic growth. However, recent discussions among lawmakers suggest potential corporate tax hikes that could undermine these improvements. Proposed changes include new limits on corporate state and local tax deductions, expansion of limits on executive compensation deductions, and an increase in the stock buyback excise tax. These measures could reduce long-term GDP and American incomes, affecting hours worked and potentially incentivizing public companies to go private.

Why It's Important?

The TCJA reforms were designed to improve U.S. competitiveness by lowering corporate tax rates and reforming international tax codes. Potential tax hikes could reverse these gains, impacting economic growth and investment. The proposed changes could disproportionately affect lower-income Americans by reducing retail investors' returns and limiting access to quality investment opportunities. As lawmakers consider budgetary offsets, prioritizing competitiveness and economic growth is crucial to avoid undermining the TCJA's achievements.

What's Next?

Lawmakers are considering options to offset the budgetary costs of extending TCJA provisions and enacting other tax cuts. The House Ways & Means Committee is reviewing legislation that may include some of the proposed tax hikes. The Senate is developing its own bill, which will need to be reconciled with the House version before enactment. The outcome of these discussions will determine the future of corporate tax policy and its impact on U.S. competitiveness.

Beyond the Headlines

The potential tax hikes could lead to significant shifts in corporate behavior, such as incentivizing public companies to go private and disincentivizing private companies from going public. This could reduce retail investors' returns and limit access to investment opportunities, disproportionately affecting lower-income Americans. Additionally, the changes could impact the global competitiveness of U.S. companies, as higher corporate tax rates may make them less attractive compared to international peers.