President Trump’s top economic adviser said Friday that the White House is exploring a massive tax cut for corporations if they bring their supply chains from overseas to the United States, a politically explosive suggestion that could reshape negotiations with Congress over the next stimulus package.
“Maybe — this is a maybe — maybe the corporate tax rate of 21 percent should be lowered by 50 percent to about 10.5 percent for corporations who are coming back home,” Kudlow told Fox Business. “That’s something to look at.”
White House officials have begun seriously studying the idea but have not yet circulated a formal proposal for the onshoring tax cut, according to one person in communication with White House officials who spoke on the condition of anonymity to discuss the internal matter. A White House spokesman declined to offer more details.
Congressional Democrats immediately blasted the idea.
“The current health crisis produced by multiple Administration failures hardly justifies another windfall for those at the top,” Rep. Lloyd Doggett (D-Tex.), a member of the House Ways and Means Committee, said in a statement.
Kudlow’s suggestion comes as House Democrats push a $3 trillion stimulus package that forges a different approach to addressing the economic crisis caused by the novel coronavirus, pushing additional spending such as $1 trillion for state and local governments and another round of stimulus checks for American households.
Lawmakers of both parties have ramped up discussions on how to bring back the U.S. supply chain from China, particularly as the virus has exposed the limits of domestic production and the dependence on foreign production of critical medical equipment.
Sen. Josh Hawley (R-Mo.) has proposed giving low-interest federal loans to companies that onshore their jobs this year in response to “global supply chain disruptions.” A large bipartisan group of lawmakers, including Sens. Marco Rubio (R-Fla.), Elizabeth Warren (D-Mass.) and Chris Murphy (D-Conn.), in March unveiled measures to curtail “critical vulnerabilities” in America’s medical supply chain, calling on the federal government to strengthen “Buy America” provisions to create a market for domestically produced medical goods.
A proposed executive order requiring federal agencies to buy U.S.-produced medical supplies has touched off a fierce debate within the White House, with some senior administration officials arguing it could backfire should China retaliate economically or withhold the critical protective gear it is supplying.
“We cannot rely as extensively as we have in the past with respect to overseas countries, including China,” Kudlow said Friday. “It still has to be held accountable.”
Some economists panned Kudlow’s idea, saying it represents a giveaway for large corporations at a time when the administration’s focus should be on containing the virus and helping small businesses being crushed by the downturn. Tax revenue have already plummeted as the economy has contracted sharply this year.
“It’s ridiculous. Companies moving their supply chains back from China is not the crisis to address when 30 million people are unemployed,” said Adam Ozimek, chief economist at the freelancing website Upwork. “This is a distraction at best and could be destructive at worst.”
Kudlow’s suggestion is “like trying to graft supply-side Reaganism onto conservative populism,” said Samuel Hammond, a policy expert at the Niskanen Center, a center-right think tank. “A lower corporate tax rate probably won’t suffice to build an entirely new factory within U.S. borders.”
Congressional Republicans have been eyeing substantial tax cuts and a “liability shield” for businesses as part of a broader deal with Democrats. Bipartisan talks, however, have not yet begun.
Trump has demanded a payroll tax cut for workers, although that idea has received a chilly reception from congressional Republicans. White House officials are also pushing cuts to capital gains taxes paid by investors; expanding a deduction for meals and expenses; and extending a deduction for new investments as part of their demands for the next stimulus package.
In their legislation, Democrats are going in a different direction on taxes. Their legislation would temporarily repeal the $10,000 cap on state and local tax (SALT) deductions created by the 2017 Republican tax law; expand tax breaks for low-income workers and families with children; increase deductions that teachers and first responders can take for certain expenses; and expand the employee retention tax credit — among other changes.
Rep. Kevin Brady (R-Tex.), the top Republican on the House Ways and Means Committee, said earlier this week that lawmakers are eyeing a number of proposals including a “return to work bonus” to help businesses and eliminating earning penalties on seniors. Brady said lawmakers have developed a proposal “for the White House” to help businesses defray, with a tax credit, the cost of protective gear and other expenses related to creating healthy and safe workplaces.
Brady also said they were also eyeing a targeted tax incentive to encourage creation of product lines in the United States for medicines and critical supplies.
