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The Challenges of Corporate-Only
Revenue Neutral Tax Reform
By Scott Hodge
· Policymakers are currently focused on corporate tax reform to bring
down the high statutory corporate income tax rate from 35 percent to 25
· A pure 25 percent corporate tax cut would increase the size of the
economy by at least 2 percent.
· However, many lawmakers want to reduce the corporate income tax rate in
a revenue neutral manner.
· There are not enough corporate-only tax expenditures that could be
eliminated to pay for a full corporate income tax cut to 25 percent.
· Many corporate tax expenditures are also used by pass-through businesses.
Eliminating them will increase taxes on pass-through businesses without
giving them a lower tax rate.
· According to the Tax Foundation Taxes and Growth Dynamic Model,
eliminating corporate tax expenditures in order to pay for a lower corporate
rate would fully negate the expected growth from the rate cut itself.
There is universal recognition in Washington that the 35 percent federal corporate tax rate
is out of step with our global competitors and should be lowered in order to improve U.S.
competitiveness and economic growth, with a common target of 25 percent. And while there
is a need for comprehensive tax reform, many have suggested that lawmakers move forward
with corporate-only reform, provided that it be accomplished in a revenue neutral manner by
broadening the corporate tax b