4 Post-Election Corporate Tax Rate Dynamics to Watch

As tax leaders watch federal election outcomes and monitor potential tax policy changes, there are key dynamics that will determine what potential tax reform looks like.

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During the intense lead-up to presidential elections, it can be easy to forget that the clock on big changes, if and when they are to come, doesn’t start ticking until January. Newly elected Presidents (incumbents and challengers) start their terms on January 20 while a new Congress convenes January 3.

As tax leaders watch federal election outcomes and monitor potential tax policy changes, it can be even easier to forget that there are important dynamics that will determine whether or not there may be tax reform, which would include changes to federal tax rates.

When it comes to state-level tax policymaking, there are also many races to determine governors and legislative winners that could have significant repercussions on sales tax rates and other tax categories. Those races are too numerous to address here, so instead, I’ll focus solely on the undercurrents that will influence whether we see a change to the current federal corporate income tax rate in 2021.

President Trump has indicated he will not change the current corporate tax rate of 21%. Joe Biden, however, has indicated he will raise the corporate tax rate to 28%. In the most basic terms, this suggests that the corporate tax rate likely stays where it is if President Trump is reelected. While a corporate tax hike is more likely to occur under a Biden presidency in 2021, is not a certainty.

Factors that Influence Corporate Tax Rate

As such, tax leaders should consider the following influences when assessing the likelihood of a corporate tax rate in 2021:

  1. Congress will be crucial: Regardless of which candidate wins the presidential election, upcoming legislative and policy-making activity will be greatly shaped by 1) whether or not the current Republican-majority Senate swings Democratic; and 2) whether or not the current Democratic majority in the House of Representatives swings Republican. When the same party holds sway in Congress and the presidency, their legislative priorities obviously are more likely to be executed. If not, there will be far more legislative obstacles at the federal level, as has been the case throughout much of the past decade.
  2. Gridlock is not guaranteed: That said, legislative gridlock is not guaranteed when different parties occupy the Senate and House. More traditional legislative negotiations and compromises could occur depending on economic conditions and other factors. If that happens in the event of a Biden presidency, it could lead to a smaller corporate tax rate increase (e.g., to 25%) in exchange for the passage of a Republican legislative priority.
  3. 100 is the magic number: During their new terms, presidents traditionally focus on accomplishing as much as possible during their first 100 days. The past two presidents experienced some difficulty achieving their 100-day objectives, and whoever wins office will likely strive to apply lessons from those struggles to achieve greater success.
  4. Corporate income tax is not an island: A corporate tax rate increase is just one of Biden’s stated priorities, but it would compete with several other formidable urgencies, including a pandemic stimulus (if a sweeping measure is not passed before January), immigration reform and addressing climate change. Given the pressure to produce legislative wins during the first 100 days, whoever is in the White House probably will prioritize legislative priorities based on their ultimate likelihood of success. That means that a potential corporate tax rate increase depends not only on its own chances of success but also how those odds compare to the likelihood of competing priorities.

This is by no means a complete list of factors that will influence what potential tax reform will look like after Tuesday’s election results are finalized. A new occupant of the Oval Office would also appoint new leaders to cabinet posts and government agencies, who will be more focused on regulatory and administrative reforms. That said, the list above should help tax leaders monitor key drivers of potential change in the months ahead.

Blog Author

Michael J. Bernard, Chief Tax Officer – Transaction Tax at Vertex Inc. Vertex's Chief Tax Office (CTO) provides insight regarding the impact of tax regulations, policy, enforcement, and emerging technology trends on global tax department operations.

Michael J. Bernard

Vice President of Tax Content and Chief Tax Officer

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Michael Bernard is the Chief Tax Officer of Transaction Tax. In his role, he provides insight and thought leadership around tax department operations, U.S. indirect tax, tax risk management, and tax policy, as well as emerging tax trends. He is an executive-level tax attorney with a diverse portfolio of experience in corporate tax, administration, and finance, including a substantive knowledge of U.S. and international tax laws.

Prior to joining Vertex, Michael was in various tax leadership roles at Microsoft Corporation for 28 years, the most recent being Senior Director – Tax Counsel. Michael led teams in the following functional areas: direct and indirect tax controversy, sales and use, business license, property, tax IT, SOX, and telecommunications. He also co-led a corporate taxpayer advocacy group with the Washington Department of Revenue and was a Director on the Board of the Washington Research Council. Michael has also testified before administrative and lawmakers at both the federal and state level.

Michael earned both a J.D. and a Bachelor of Science in Business Administration from Creighton University. He is a part-time lecturer of Law in the LLM program at the University of Washington School of Law. Michael also served on the board of directors, executive committee, and chaired committees for The Tax Executives Institute (TEI) for nearly 25 years.

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