Democratic House Will Raise Business Taxes

Now that Democrats have control of the House they are hoping to undo a recently passed Republican law that could make raising taxes difficult. Their main argument will focus on raising the corporate tax rate a few percentage points which if successful could cause the entire Tax Cuts and Jobs Act (TCJA) of 2017 to come undone. Republican Party representatives have continuously credited the lower business taxes with TCJA as the primary factor for this years improved economy.

Tax cuts to businesses provided the much needed boost to the economy. Businesses across the country have used the money saved to increase employee wages, retirement benefits and giving out more bonuses. It is evident the country as a whole has done exceptionally well since the TCJA passed with large increases in job openings and lowest unemployment rate in the last 20 years.

Tax Reform 2.0 Bill Off the Table

With the new Democratic house it will be hard to build on the success that the tax reform has created. Right before the midterm elections the House passed the Tax Reform 2.0 bill which aims to protect middle class and small business tax cuts and encourage entrepreneurship. The main idea behind the new Tax Reform is to make permanent the TCJA’s income tax rate cuts and the deductions for up to 20% of qualified business income from pass-through entities like LLC’s and partnerships.

Democrats have cemented their role in downplaying the positive results that have been seen from the tax reform. They argue that these tax cuts are only for wealthy individuals and corporations along with how they will increase federal budget deficits indefinitely. With a price tag of about $625 billion on top of the $1.5 trillion for the TCJA over the next 10 years it is unlikely to get passed the Senate. Now with the Democrats winning the House and set to takeover in January 2019 the Tax Reform 2.0 bill would need a lame duck session to get passed.

Even before winning the midterm House elections the Democrats were putting max effort towards repealing the tax reform and raising business taxes. Already proposed were bills to increase taxes on businesses as part of a trillion dollar tax increase that would put the corporate rate higher than most other NATO countries. Increasing the corporate rate to even 25% is hopefully a nonstarter since Republicans still maintain the majority in the Senate chamber and have promised the corporate tax reduction would lead to economic growth.

Democratic House Will Raise Business Taxesbusiness taxes

Democrats are yet to settle in on a strategy for revising the current tax law they have called a handout to the rich and therefore demanded some areas be revised or revamped. Democratic lawmakers will also attempt to raise taxes on hedge funds as well as reshape international tax rules to increase taxes for U.S. companies operating abroad.

At this point it would be nearly impossible to make revisions to parts of the tax reform that benefit the rich without negatively affecting the upper-middle class. It should be accepted that the 10% tax cut for the middle class or indexing capital gains for inflation are now off the table with the Democratic House. The GOP party can’t risk the Democrats claiming these to be “another tax cut for the rich.”

Now that Congress is divided it is clear that changes to business taxes will be coming. Democrats will be quick to push for tax raises while Republicans continue to try and build on the success of TCJA. The positive economic news of this year will surely erode as the Democrats chip away at the recent tax cuts awarded to businesses and their employees. Do not expect the Democratic House to provide any tax breaks to anyone.

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