Congressional tax writers want to offer U.S. companies an “unprecedented” way to slash their tax bills by investing in new equipment. But firms that stand to benefit most are saying no thanks, just give every company a bigger rate cut.

A lobbying group for companies including AT&T Inc., Verizon Communications Inc. and Intel Corp.—all of which were among the biggest spenders on equipment and facilities over the past 12 months—says a major cut to the current 35 percent corporate tax rate is the better way to drive economic growth.

“Making America great starts with the rate—ideally in the low 20s,” said James Pinkerton, co-chair of the RATE Coalition, which has dozens of corporate members. “Every other tax decision is subordinate to what the rate is.”

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Some economists disagree, arguing that “full expensing” —letting companies write-off the cost of their capital spending immediately instead of doing it gradually over years—would provide incentives for companies to invest, spurring growth more effectively than a simple rate cut. But the revenue cost of the change, which is estimated at more than $2 trillion over 10 years, makes it a tough sell politically.

“It’s a trade-off between lower rates and expensing” if you want tax cuts that don’t add to the deficit, said David Sites, a partner in international tax services at auditing firm Grant Thornton.

GOP leaders have been laying the groundwork to get tax legislation through the Senate without Democratic support. Under budget rules governing the process they’d use—known as reconciliation—any provisions that would add to the long-term deficit would have to be set to expire.

President Donald Trump, who has set a goal of 3 percent annual growth, is cool to the full expensing idea—and very keen on achieving the lowest possible corporate tax rate. That, coupled with indifference from corporate America, may narrow the proposal’s chances of surviving in the framework for tax legislation that GOP leaders have promised to release later this month.

“On the expensing front, we do not believe expensing should be prioritized at the expense of rates,” Marc Short, White House director of legislative affairs, said Tuesday at an event sponsored by the Christian Science Monitor. “We’re more interested in prioritizing lower rates. We think that’s more important to actually getting the economy growing.”

A day later, Representative Mark Meadows, chairman of the conservative House Freedom Caucus, emerged from a House Republican tax meeting and said: “It sounds like they are not going to do full and immediate expensing.”

House Speaker Paul Ryan and the chief House tax writer, Kevin Brady, have been the proponents of expanded expensing—they originally called for allowing full, immediate write-offs for capital spending last June.

Bonus Depreciation

Currently, companies are allowed to deduct half of certain capital expenditures right away under a temporary provision known as bonus depreciation.

The benefit, which was initially considered a way to help stem the effects of recessions, is scheduled to phase out over the next several years. But congressional tax writers could opt to make it a permanent feature of the tax code, said Ray Beeman, co-leader of EY’s Washington Council Ernst & Young practice. Senator John Thune, a member of the tax-writing Senate Finance Committee, introduced a bill in May to do just that.

Retaining bonus depreciation would be far less costly than full expensing in terms of revenue—just $251 billion over a decade, according to the Committee for a Responsible Federal Budget. Critics of expensing still say they would rather see those savings go toward slashing the corporate rate.

The expensing proposal was already facing political headwinds. In July, Trump administration officials and congressional leaders released a broad statement of principles that suggested only a goal of “unprecedented expensing”—without defining that term. There have been no additional details since.

“Members are working on pro-growth tax reforms like lower rates and unprecedented expensing that would make America an attractive place to create businesses and jobs,” said Emily Schillinger, a spokeswoman for the tax-writing House Ways and Means Committee. “These reforms will also encourage companies to bring money back to the United States and invest it here.”

‘Reliable Pathway’

Here’s one reason why a corporate rate cut to the mid-20s might not spur much growth: Many companies already have that, at least in effective terms, because they use various tax strategies—permitted under the current code—to reduce the actual income taxes they pay.

“Cutting the top corporate tax rate to 20 or 25 percent would not provide a large tax cut to many U.S.-based multinationals,” said Mark Mazur, a former top Treasury tax official and director of the Urban-Brookings Tax Policy Center. More than 250 of the largest U.S. companies paid an effective rate of 21.2 percent from 2008 to 2015, according to a recent study.

Full, immediate expensing would give companies incentives to reinvest and grow, proponents say. But if it’s less than full, the growth would be “more muted,” said senior analyst Scott Greenberg of the Tax Foundation.

Some conservatives have different views. Billionaire industrialists Charles and David Koch are pushing for the lowest corporate rate possible. Turbocharging expensing “stands in the way of the rate reduction that would more reliably spur growth,” said Philip Ellender, president of government and public affairs at Koch Industries. “We maintain that corporate rate cuts are a more reliable pathway to growth.”

No Position

Verizon spokesman Bob Varettoni said the company wants to see a focus on lowering the corporate tax rate, but it does support making bonus depreciation permanent.

AT&T spokeswoman Erin McGrath said that while the telecommunications firm benefits from accelerated expensing, the deduction may be of little to no help to media and services companies, which have significantly lower levels of capital investment. Lawmakers should set a lower corporate rate and consider expanding expensing, McGrath said. An Intel spokeswoman declined to comment.

Achieving the lowest possible tax rate has broad support among business groups. The Business Roundtable, an association of top chief executive officers, said its biggest priorities for tax reform are competitive business tax rates and a modern international tax system.

“As we await legislation, BRT does not plan on taking a position on expensing, or other separate provisions,” Matt Miller, vice president of the lobbying group, said in a statement. “Rather we will evaluate any legislation as a whole.”

Cutting the corporate rate is now “the number-one priority” for the National Retail Federation, said lobbyist David French. The group’s members include Wal-Mart Stores Inc., the world’s largest retailer.

Unfair Advantage

Proponents of full expensing have tied it to another proposal, which would eliminate a corporate tax deduction for net interest payments on loans. Trump and his advisers have signaled that they’d prefer to retain interest deductibility.

Limiting the interest deduction would hurt industries that borrow heavily, such as private equity and real estate. Restricting that deduction while offering enhanced expensing would unfairly advantage companies that spend money on physical things, said Gretchen Perkins, a partner at private equity firm Huron Capital Partners. Companies are becoming concerned that the overall tax rate cut won’t be large enough, according to Perkins.

“If the trade-off is a deduction now versus a lower tax rate, most taxpayers would choose a lower rate,” said Jane Rohrs, the director for the Federal Tax Accounting Periods, Methods & Credits Group at Deloitte Tax LLP and a former staffer at the Joint Committee on Taxation.

—With assistance from Erik Wasson

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