In contrast to the headwinds against First Amendment activity elsewhere, the dramatic reduction in the corporate tax rate in the Republican tax plan unveiled on Thursday would be a boon to political discourse in America.
Any corporate tax reduction would promote more legislative advocacy and political speech, which might help Americans engage in more conversations about the issues of the day.
The reduction of the top corporate tax rate to 20 percent in the GOP bill would impact four main areas: taxation of political committee investment income, taxation of political activity by nonprofits, the non-deductibility of lobbying and political expenses and the proxy tax paid by some trade associations.
First and at the most basic level, thrifty left-wing, right-wing and centrist PACs and Super PACs and 527 political organizations that invest money and earn interest and dividends would be able to keep more of what they earn. They are currently taxed at a rate of 35 percent on their investment income.
This rate would drop to 20 percent in the GOP plan. Although interest rates are still historically low, the tax reduction would add to the coffers and allow political organizations to make more contributions or engage in more independent expenditures or other types of political messaging.
Second, non-charity nonprofits that engage in certain types of political activity — for example, urging votes for or against federal, state or local candidates or making contributions to political party committees in states where permissible — are currently slapped with a 35-percent excise tax in certain passive income situations.
This high added cost deters some (especially smaller) unions, trade associations, 501(c)(4) social welfare groups and other nonprofits from engaging in any such communications at all. The high tax rate silences them. For those that do venture out, the excise tax reduces the overall amount spent on actual express advocacy or contributions.
Lowering the rate to 20 percent greatly reduces the deterrent effect of the political activity excise tax and increases the effectiveness of those engaging in core political speech around the country.
On the lobbying side, costs related to direct and grassroots lobbying activities are generally non-deductible as business expenses by for-profit concerns. This includes grassroots advertisements related to municipal legislation in Detroit, ballot measure activity in Colorado and efforts to influence the secretary of the Treasury with respect to tax regulations.
The non-deductibility applies to in-house costs, outside lobbyists and the pass-through of the costs of political and lobbying communications by trade associations and other nonprofits.
The proposed legislation would effectively lower the tax rate on non-deductible expenses from 35 percent to 20 percent, making these costs less expensive to corporations and other businesses (and softening the blow of another provision that eliminates the deductibility of direct local lobbying).
The costs would still be non-deductible, but the lower rate would eliminate some of the sting, promoting more advocacy, more discussions, more communications. Legislative advocacy and political participation would be less cost prohibitive, which is particularly important to smaller concerns.
Finally, some trade associations pay a proxy tax to cover the non-deductible aspects of their lobbying and political endeavors, such as their in-house lobbyists and administrative costs for their PACs. This way, a trade association doesn’t have to pass on such costs to their members. The proxy tax is currently 35 percent. It would fall to 20 percent with the plan, but any reduction would be helpful in this regard.
In these four ways, a lower corporate tax rate would instigate more advocacy and core political speech by businesses, unions and representatives of all aspects of American life, which, overall, would be a good thing.
Mark Renaud is a partner at Wiley Rein, LLP, where he advises clients on a wide array of international, federal, state and local campaign finance, lobbying, ethics and pay-to-play laws.