Retail and fashion groups are throwing their full support behind a Republican proposal for tax reform that would see corporations paying one of the lowest income tax rates in history but is already stoking the ire of top Democrats.
The National Retail Federation said the proposal, offered up by Congressional Republicans with the support of the Trump administration, “could provide a major boost for the nation’s economy.”
While the proposal is generally lacking in the details expected of what could amount to historic legislation, it laid out more specifics than were offered up in a one-page document presented in April by Treasury Secretary Steven Mnuchin.
Several of the more detailed changes are aimed at cutting taxes for corporations. While the April proposal called for the corporate income tax rate to be cut to 15 percent from 35 percent, the new version wants it down to 20 percent. This is below the 22.5 percent “average” tax rate for the industrialized world and, as such, is thought by Republicans to likely draw more business to the U.S.
Businesses can also look forward to possibly writing off all “capital investments” for at least five years, something Republicans characterized as “an unprecedented level of expensing,” according to the proposal.
The NRF alluded to the vagaries in the current draft, which calls for further contemplation by tax committees on nearly every individual measure, but president Matthew Shay said it’s “a very positive step forward to achieving the kind of comprehensive tax reform that’s needed to keep our nation’s economy competitive in the global environment.”
“This plan would provide much-needed relief for corporations, small businesses and middle-class individuals alike, and would help draw foreign capital and investment in the U.S.,” Shay added.
Wal-Mart, too is supportive of the proposal, and a spokesman said “the framework released today is an important step in the right direction.”
“The framework recognizes the need to advance tax reform options that encourage investment in the United States, make U.S. businesses more competitive around the world and help working families,” the spokesman continued.
Jennifer Safavian, head of government affairs for the Retail Industry Leaders Association, largely agreed, saying the proposal represents “an historic opportunity.”
“Tax reform that scrutinizes credits and deductions not applicable to all taxpayers and flattens rates for all will spur investment, job creation and consumer savings,” Safavian said.
Republicans are positioning a call for “a 100 percent exemption for dividends from foreign subsidiaries” that are repatriated as a way to end the purportedly “perverse incentive” for corporations to keep profits outside the U.S., due to the single tax rate they currently face.
As for any foreign earnings an American company may have accumulated thus far, they will be immediately considered repatriated and therefore, tax-exempt, according to the new proposal.
Steve Lamar, executive vice president of the American Apparel & Footwear Association, said a lower corporate tax rate coupled with being “allowed” to repatriate overseas profits will create spur more investments in supply chain, product innovation and increase employee wages.
“We look forward to taking a closer look at the details of the plan and working with Congress and the administration to share insights from the industry and seek swift approval this year,” Lamar added.
Enactment will likely be difficult to come by, but Jorge Castro, the tax policy adviser for the Fashion Innovation Alliance, said it “shows there is momentum in Washington.”
“While political and policy hurdles remain for tax reform as it goes through the legislative process, this is positive movement,” Castro said. “Now the Congressional tax writing committees will need to dive into the specifics of the tax reform legislation and seek to develop consensus in the House and Senate — which will not be easy.”
With the proffered rate reductions for businesses, Republicans said all tax credits, save for research and development and the creation of low-income housing, will be “repealed or restricted.”
Current business tax credits include those for investments in renewable energy and non-gasoline powered vehicles, disaster relief efforts and hiring individuals on welfare.
Non-business tax reforms put forward include the “simplification” of work, education and retirement tax benefits, the elimination of “most” itemized deductions and the elimination of the alternative minimum tax, which limits deductions available certain types of high-earning businesses and estates.
The proposal also calls for the reduction in individual tax brackets to three (12 percent, 25 percent and 35 percent) from seven (10 percent, 15 percent, 25 percent, 28 percent, 33 percent, 35 percent and 39.6 percent).
The level of income that would fall under the three bracket system was not detailed.
In addition, the proposal wants to eliminate the estate tax, which is a tax levied based on a deceased person’s property value before it’s redistributed to heirs. The tax only applies to estates valued at $11 million or more.
While Republicans and President Trump characterized their tax reform proposal as a “pay raise” for American workers, the Economic Policy Institute, an economic think tank based in Washington, D.C., disagreed.
“Not only does [the proposal] deliver big tax cuts for the rich, it actually pretty creatively ensures that the crumbs that fall to the middle class will be as small as possible,” said Josh Bivens, an Economic Policy Institute researcher. “The most obvious giveaways to the rich are a reduction in the top individual rate to 35 percent and a cut in the top corporate rate to 20 percent. As we’ve noted before, cuts to corporate rates are cuts to the rich, period.”
Senator and former presidential candidate Bernie Sanders took particular issue with the proposed estate tax repeal, saying on Twitter that the move would amount to a “$269 billion tax break to the top 0.2 percent.”
In another post, the senator said: “At a time of massive wealth and income inequality, Trump’s tax plan is morally repugnant and bad economic policy.”
Senate Minority Leader Chuck Schumer also came out strongly against the proposal, saying it’s “little more than an across-the board tax cut for America’s millionaires and billionaires.”
His peer in the House, Congresswoman Nancy Pelosi similarly derided the plan as a “ploy to give the rich massive tax cuts and make families foot the bill.”
Pelosi added that Democratic lawmakers will fight the proposal and push for tax reform with “not one penny in tax breaks for the wealthiest one percent.”
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