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1 William McBride & Garrett Watson, Three Corporate Tax Hikes That Would Undermine TCJA's Improvements to Competitiveness 1 (May 2025)

handle is hein.taxfoundation/thecttxzh0001 and id is 1 raw text is: *,TAX FOUNDATION Three Corporate Tax Hikes That Would Undermine TCJA's Improvements to Competitiveness William McBride Chief Economist & Stephen J. Entin Fellow in Economics Garrett Watson Director of Policy Analysis May 2025 Key Findings * One of the central achievements of the Tax Cuts and Jobs Act (TCJA) of 2017 was to enhance US eco- nomic competitiveness by implementing the largest corporate tax reform in a generation. Studies indi- cate TCJA's corporate tax reforms substantially raised US capital investment and economic growth. * Several provisions of TCJA expanded the corporate tax base, which as a share of GDP grew by 56 percent in the five years following TCJA enactment, from a pre-TCJA average of 7.1 percent of GDP to 11.1 percent of GDP in 2022. * Additionally, the Inflation Reduction Act (IRA) of 2022 levied new taxes on corporate income, including the corporate alternative minimum tax (CAMT), the 1 percent excise tax on stock buybacks, and sever- al green energy tax credits. * Corporate tax revenue now exceeds pre-TCJA levels, both as a share of GDP and as a share of all fed- eral tax collections. However, lawmakers may roll back some of the TCJA's base broadeners that are a drag on economic growth, such as the requirement to amortize research and development costs. * Lawmakers may be considering raising corporate taxes in other ways to offset the budgetary cost of extending expiring provisions of the TCJA and implementing other tax cuts. Three such corporate tax hikes that have been discussed are: (1) new limits on corporate state and local tax (C-SALT) deduc- tions, (2) an expansion of current limits on public companies' compensation deductions under Section 162(m), and (3) an increase of the stock buyback excise tax above the current 1 percent level. Of these three, the House Ways & Means legislation only included changes to 162(m); however, in recognition that some combination of the three could be included in any final version enacted into law, this paper examines their potential impact. We found that, depending on how they are structured, each tax in- crease could reduce long-run GDP and American incomes by more than 0.1 percent and reduce hours worked by more than 60,000 full-time equivalent (FTE) jobs. The Tax Foundation is the world's leading nonpartisan tax policy 501 (c)(3) nonprofit. For over 80 years, our mission has remained the same: to improve lives through tax policies that lead to greater economic growth and opportunity. TAX FOUNDATION 1325 G STREET, NW, SUITE 950, WASHINGTON, DC 20005 202-464 6200 1 taxfoundation.org