The Joint Committee on Taxation (JCT) issued on November 2 a preliminary analysis of a proposal to eliminate virtually all corporate tax expenditures in return for a lower corporate tax rate. Copies of the report and accompanying revenue tables are attached. The JCT report finds that by eliminating all these expenditures, the corporate rate could be lowered from 35 percent to 28 percent without a revenue loss—not as big a reduction as proponents of corporate tax reform are calling for. No passthroughs (REITS nor MLPs) were included as tax expenditures on the list.

Many Republicans, including House Ways and Means Committee Chairman Dave Camp (R-MI), have called for a corporate tax rate closer to 20 percent. Chairman Camp’s corporate/international tax reform plan proposed last week, which does not provide specifics apart from the international tax reform proposals, sought a 25 percent corporate rate.

The JCT report, which was requested by House Democratic tax writers, underscores the difficulty Congress faces in conducting a revenue-neutral rewrite of the tax code. While many in both parties and the President seem to agree that base broadening can be used to pull down the corporate rate, the JCT report appears to show that even with virtually all tax expenditures eliminated, the rate would still need to be fairly high. A 28 percent corporate rate would result in $717.5 billion fewer tax dollars collected over 10 years, according to the JCT estimate. The report did not consider any transition rules that might accompany a corporate reform plan. These would be likely to further diminish estimated revenue in the early years after adoption of reform legislation.

Ways and Means Ranking Minority Member Sander Levin (D-MI) used the report as the basis for criticizing Republicans, saying it “raises questions about what else Republicans plan to cut to pay for such a dramatic rate reduction for corporations, or whether they will use budget ploys such as ‘dynamic scoring.’ ” Republicans in turn criticized Levin’s statement as showing his “support for higher taxes as well along with his blatant opposition to tax reform,” noting that the analysis is only a preliminary score that lacks revenue estimates for a number of specific provisions, including all agriculture-related tax expenditures, the cost of reduced tax rates on the first $10 million of corporate taxable income, and expensing of Section 179 depreciable business property.