Companies Shifted Deductions, Income to Maximize 2017 U.S. Tax-Rate Cut


Professor Rebecca Kysar‘s expert opinion on corporate tax rates was quoted in the Wall Street Journal. Kysar testified on Tuesday in front of the Ways & Means Committee, in Washington, D.C., during the “Disappearing Corporate Income Tax” hearing.

U.S. corporations accelerated deductions and deferred income to maximize the benefits of the 2017 tax-rate cut, contributing to a large temporary drop in federal corporate-tax revenue in 2018, according to newly released data.

Nevertheless, as the rate cut was happening, the incentives were clear for companies. They wanted to take as many deductions as possible in 2017 and push as much income into 2018 as possible. Those actions would reduce the share of a company’s taxable income subject to the 35% rate in 2017 and increase the share subject to the 21% rate in 2018.

The reverse could be true if Democrats win the White House in November and follow through on their campaign promises to raise tax rates. Companies would then have an incentive to accelerate income and defer deductions.

One way to prevent these maneuvers would be to phase in tax cuts gradually, said Rebecca Kysar, a Fordham University law professor who testified at a House Ways and Means Committee hearing on Tuesday. In 2017, Republicans debated and then rejected that option.

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