A Trump Tax Cut Looks Good to Business, but It Has to Add Up

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Long-term certainty; offsetting lost revenue; lower rates for noncorporate enterprises; border taxes and tariffs; and the treatment of offshore profits — all can be just as important, if not more so, depending on the business.

“That’s where the devil is, in the details,” Mr. French said. And details are expected to be in short supply in any plan released this week by the administration.

The idea of a border adjustment tax, which in broad strokes would mean taxing imports at 20 percent while exempting exports, for example, is not part of Mr. Trump’s latest plan, but it remains a key element of the House Republicans’ tax proposal. Supporters argue that it would shore up domestic manufacturing, bring home profits that have been kept overseas and out of the reach of the Internal Revenue Service as well as pay for other tax cuts. But that item is poison to his members, Mr. French said.

Some estimates done by retailers, he said, show that taxes could in some cases exceed a company’s annual profits.


Shoppers last month in Herald Square. “A 15 percent tax rate would be a huge win for our members,” said David French, of the National Federation of Retailers. Credit John Taggart for The New York Times

“That would be like making our tax go from 35 percent to 100 percent,” Mr. French said. “We don’t want to be in the position of killing tax reform,” he said, but if forced to choose between lower rates with a border adjustment tax or nothing, he said, “the choice is easy for us.”

Suku V. Radia, the chief executive of Bankers Trust, Iowa’s largest independently owned bank, is also waiting for details, particularly the effect of a major tax cut on the budget deficit. “It is obviously a significant drop from where we are currently, and I’d like to at least be able to better understand what do we do to make up for it,” he said. “What is the loss of revenues going to be, and how are we trying to fill the gap?”

Scott D. Sheffield, the executive chairman of Pioneer Natural Resources, a major oil and gas independent, agreed. “They definitely have to get health care done first for the billions in savings you can use to offset the tax bill,” he said.

“The question is will we be able to get the growth rate to make up for lost revenues if we go to 15 percent or 20 percent,” he added. “I do think the oil and gas industry, and all industries including solar and wind, will have to give up some of their deductions to get a low tax rate.”

Some of those deductions are beloved by particular industries. Companies heavily dependent on loans, for instance, are concerned that a deduction for interest paid on debt might be eliminated.

A low corporate tax is great, said William E. Brown, the president of the National Association of Realtors, but it was not worth giving up the mortgage interest deduction, homeowners’ ability to write off state and local taxes or a provision that allows building owners to use the proceeds from a sale to buy another building without paying taxes. “That all has to be part of the plan,” he said.

At the same time, smaller manufacturers and others worry that most companies not organized as corporations might still be subject to a nearly 40 percent rate while larger corporations receive a hefty cut. Profits from these businesses are passed on to owners’ individual returns.

That could shift the playing field in favor of corporations, tax-wise, said Steven M. Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center.


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One drawback to the cut business rate is how long it will last. Republicans passing a tax bill without votes from any Democrats would lead to limits on any changes beyond 10 years that increase the deficit. As much as business leaders like low rates, they also like certainty, and temporary tax changes complicate long-term investment decisions.

“Uncertainty can kill a project more than anything else,” said Andy Shapiro, the managing director of BLS & Co, a location advisory firm. At the same time, he noted that for many firms, a 10-year horizon was acceptable.

“Bold proclamations from President Trump about reducing corporate income taxes have an impact,” he added. Foreign investors, he said, are particularly enthusiastic about the possibility of such low rates.

Some money managers were skeptical that the administration could pull off a corporate tax rate as low as 15 percent.

“I don’t think it’s feasible to get done without border adjustment and closing some major loopholes like interest deduction,” Erin Browne, head of macro investing for the O’Connor hedge-fund division of the Swiss bank UBS, said in a text message.

Ms. Browne says that her operative assumption is that the corporate tax rate will instead fall to 25 percent. “To me, Trump is undertaking ‘art of the deal’ negotiating tactics.”

Chip Johnson, the chief executive of Carrizo Oil and Gas, a medium-size Texas-based independent, said he would like to see lower corporate taxes, but he has doubts about whether Mr. Trump can pull it off.

“I don’t think he is doing that well,” Mr. Johnson said of the president’s overall performance. “He seems to be running into a lot of resistance in Congress from both sides. I think the issues that he has tackled are really complicated like health care.”

Whatever details come out of the White House, getting a tax bill passed will be anything but easy. As Mr. Radia of Bankers Trust said: “I don’t think there is such a thing as ‘tax simplification.’ It’s inherently complicated.”

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