Dems Bash Corporate Tax Cuts Even as Their Blue States Slash Rates

Jurisdictions that have reduced corporate levies since 2012 include Illinois, New York, and the District of Columbia

by Brendan Kirby | Updated 05 Jan 2018 at 6:54 AM

Democrats trained their heaviest fire in attacking the just-passed federal tax reform on the measure’s corporate tax cuts, lambasting the idea as a massive giveaway to the rich.

But even as prominent Democrats such as Senate Minority Leader Chuck Schumer (D-N.Y.) and Sens. Sheldon Whitehouse (D-R.I.) and Richard Durbin (D-Ill.) trashed the idea, their extremely blue home states have been cutting corporate tax rates.

The three states are among a dozen overall that have changed their corporate tax rates since 2012, according to a report this month by the Tax Foundation. All of the changes have flowed in one direction: down.

In addition to New York, Illinois, and Rhode Island, the list includes Democratic-leaning New Mexico and the deepest-of-blue District of Columbia. Illinois actually raised the corporate tax rate again earlier this year, but the 7.75 percent rate still is lower than its 9.5 percent rate of 2012.

“State leaders are recognizing what many on the national level so far have failed to grasp,” said Pete Sepp, president of the National Taxpayers Union.

Sepp said states have cut their corporate tax rates to remain competitive in the struggle to lure and retain job-creating companies.

The Tax Cuts and Jobs Act, which passed Congress this week, dramatically slashes business taxes. The top corporate tax rate will drop from 35 percent to 21 percent. Businesses also will get favorable rules on writing off expenses related to new plants and equipment.

Adam Michel, a policy analyst for the conservative Heritage Foundation, a think tank, said there is no legitimate reason why corporate tax reductions would be a good idea on the state level but a negative for the federal government. He said the main rationale motivating states — to increase competitiveness — also applies to the national government.

The Tax Cuts and Jobs Act, which passed Congress this week, dramatically slashes business taxes. The top corporate tax rate will drop from 35 percent to 21 percent.

“If you look globally as well, you see the exact same trend,” he said, pointing to a long string of countries that have slashed business levies.

Michel said corporate taxes are an inefficient way to raise revenue because capital is highly mobile. If companies face onerous taxes in one country, he said, they can easily shift profits to lower-tax nations. That is exactly what has been happening, he said.

It is not just the home states of America’s leading liberals that have looked favorably on tax cuts. Some of those politicians themselves advocated corporate tax cuts not long ago.

Schumer in 2015 worked with Sen. Rob Portman (R-Ohio) on legislation to cut corporate taxes to lure cash held overseas back home.

“The companies make a fortune overseas,” Schumer told Fortune at the time. “They’d rather bring the money back here.”

A year later, Schumer told CNBC that corporate tax cuts would be one of his highest priorities and made clear he favored a cut more enduring than a one-time tax holiday.

“Yes, you can’t do a one-shot deal,” he said.

Michel said quotes like that are the opposite of what Schumer and other Democrats said about the Trump/congressional GOP bill passed this week. “My view is they changed their tune for politics,” he said.

Sepp agreed.

“It seems to have a lot to do with political posturing,” he said. “Even the Obama administration was receptive to taking the corporate tax rate below 30 percent.”

State Corporate Tax Cuts
State20122017
North Carolina6.9%3%
Indiana8.5%6.25%
Arizona6.968%4.9%
Rhode Island9%7%
Illinois9.5%7.75%
New Mexico7.6%6.2%
West Virginia7.75%6.5%
Washington D.C.9.975%9%
North Dakota5.2%4.31%
New York7.1%6.5%
New Hampshire8.5%8.2%
Idaho7.6%7.4%
Source: The Tax Foundation

Indeed, then-President Barack Obama in 2012 proposed cutting the top corporate tax rate to 28 percent, with certain preferences for manufacturers that would give them an effective rate of 25 percent.

“It’s a framework that lowers the corporate tax rate and broadens the tax base in order to increase competitiveness for companies across the nation,” he said in a statement at the time.

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Steven Moore, an economist who helped the Trump campaign develop the candidate’s tax proposal, said the Democrat rhetoric over the past month is consistent with a party that has drifted further and further Left on tax issues. He said the days that the Democrats had a robust growth wing are long gone.

“It has become the new religion of the Left that taxes don’t matter,” he said.

And despite a few outliers on state-level corporate tax cuts, Moore said, the trend on taxes across the country has been one of partisan divergence.

“The red states are cutting their taxes, and the blue states aren’t,” he said.

PoliZette senior writer Brendan Kirby can be reached at [email protected]. Follow him on Twitter.

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