Businesses try to fill in blanks on Clinton tax plan

While companies in general see a Clinton presidency as a less risky and more attractive option than four years of Donald Trump, business taxation is one area in which they might be more inclined to favor the Republican.

Clinton hasn’t said exactly what corporate tax rate she would favor or spelled out other key details of a business tax agenda, beyond a preference for raising taxes.

That leaves executives to fill in the blanks by looking at a Democratic Party that may be moving left on corporate taxation, favoring tougher rules and higher taxes rather than the rate reductions advocated by President Obama.

Should Democrats win big on Clinton’s coattails and receive a mandate for their agenda, harmful tax increases may be in store for corporations, said Phil Orlando, chief equity strategist at Federated Investors Inc.

In that scenario, “I don’t think we get the moderate Mrs. Clinton. I don’t think we get the ‘Bill’ Hillary. I think we run the risk of getting the ‘Bernie’ Hillary,” he said, contrasting Bill Clinton’s center-left governance versus Vermont Sen. Bernie Sanders’ populist agenda.

For now, however, markets reflect a clear preference for Clinton, Orlando noted.

Business economists mostly see a Clinton presidency as a neutral prospect compared to the Obama administration. But 60 percent view a Trump presidency as unfavorable, according to a new survey from the National Association of Business Economists.

“At this time of every election cycle, especially after a two-term president, there is a degree of uncertainty,” said Caterpillar CEO Doug Oberhelman, speaking on a recent call with reporters hosted by the Business Roundtable, the group of CEOs that he is chairman of. “We don’t have any direct way of knowing, whether it’s related to one candidate or another.”

Trump is viewed skeptically in large part because many executives view his personality and temperament as risks.

In policy terms, Trump’s agenda is clearly advantageous to business on taxation, which they have said is one of their major concerns.

Trump has called for cutting the corporate tax rate from 35 percent to 15 percent. He also would create a special 15 percent rate for partnerships, S-corporations, sole proprietorships and other businesses that are taxed through the individual side of the code. Such businesses constitute most employment in the U.S.

That 15 percent rate would be well below the average among advanced economies, which is about 23 percent. With rates that low, the incentives for corporations to seek to move their headquarters overseas would be diminished.

The trend of major corporations looking to move their headquarters into lower-tax nations through mergers or acquisitions has generated some urgency for Congress to reform the tax code to make it more conducive to keeping companies in the United States.

The Obama White House sought to broker a deal on corporate tax reform with Republicans in Congress, stating a goal of lowering the corporate tax rate to 28 percent, or 25 percent for manufacturers.

Obama’s plan also would have cut down the taxation of profits earned abroad to a minimal level, lessening the incentives for companies to route profits through tax havens and keep those earnings overseas.

That dynamic led to Apple keeping an estimated $200 billion in earnings overseas. Apple’s tax arrangements are now an international political dispute, after the European Commission ruled that the company had underpaid the Irish government and must settle a $15 billion tax bill.

The Obama administration protested that ruling and used it as an opportunity to press the case for lowering corporate tax rates.

“I would hope that the idea that a European Commission action will reach into our tax base and take U.S. tax revenues and make them European tax revenues will help to trigger this debate over tax reform,” Treasury Secretary Jack Lew said this week at an event in New York.

Clinton, however, hasn’t expressed support for similar measures. She hasn’t endorsed any corporate tax rate cut. Instead, most of her proposals have focused on new penalties for multinationals that try to limit their U.S. tax bills. Those include tougher new rules to stop corporate “inversions” and an “exit tax” on companies that relocate their headquarters overseas.

While Clinton has proposals to address specific liberal worries about corporate tax avoidance, “there are many key details missing, making it difficult to know whether she is open to a wholesale rethinking of corporate income taxation, international versus domestic, etc.,” said Jon Traub, managing principal of tax policy at Deloitte Tax LLP.

Some Democrats in Congress, such as Sen. Charles Schumer, the New Yorker expected to lead the caucus in the Senate next year, have backed versions of broad international or corporate tax reforms.

The Democrats who have influenced Clinton and pushed her to the left during the primary, however, would go in the opposite direction.

Liberal Sen. Elizabeth Warren of Massachusetts, for example, welcomed the European Commission’s Apple ruling in a New York Times op-ed. Warren warned against “bailing out the tax dodgers under the guise of tax reform” and called lowering rates on international income, a policy supported by Obama, “nuts.” Congress should increase corporate taxes, she wrote.

Her arguments were in line with the platform that Sanders ran on during the Democratic primary, pressuring Clinton to move to the left.

Clinton’s plans would amount to a corporate tax increase of about $136 billion over 10 years, according to an estimate prepared by the nonprofit Tax Policy Center.

That leftward tilt, however, would be a nonstarter if Republicans maintain control of Congress or at least the House, a prospect that currently looks realistic.

“What is priced into the market right now is, Clinton wins pretty handily but Republicans are able to maintain their firewall in the House of Representatives,” Orlando said.

But executives and investors are left in the position of trying to make plans while handicapping the odds of not just Clinton versus Trump, but also Clinton with a GOP Congress versus Clinton with a Democratic majority and a mandate.

Then, they must plan around what deals might be reached among Clinton and leaders such as House Speaker Paul Ryan and Schumer on not just taxes, but also spending, regulations and a host of other big-picture issues. “You can’t isolate tax,” Traub said. “These people all talk to each other on multiple issues.”