This past week, the Trump administration issued its tax proposals. While I haven’t had an opportunity to evaluate the proposed changes to individual taxation, the implications of the corporate tax proposals are clear. In 1986, Congress cut the corporate tax rate from 46 percent to 35 percent, making the U.S. corporate tax rate one of the lowest rates in the world. Since then, most other industrialized nations have reduced their tax rates to something in the 17 percent-to-25 percent range. Most of those countries have funded the corporate tax rate reductions by increasing the taxes paid by individual taxpayers. From the perspective of multinational corporations, our tax system has two problems. Not only do corporations pay relatively high tax rates, but foreign earnings are taxed in the foreign jurisdiction and then again when they are repatriated to the U.S. We are one of only three countries that taxes income earned in foreign jurisdictions twice, and that results in a permanent overseas investment of foreign earnings of U.S. corporations. CNBC estimates that U.S. companies hold $2.6 trillion of cash offshore. Clearly, if our tax laws were changed, a significant portion of this amount would be repatriated to the U.S. and would be available for investment in domestic activities. There is bipartisan support for reforming tax laws to eliminate the double taxation problem. However, there is considerable disagreement as to whether we should reduce corporate tax rates. Proponents of corporate tax cuts argue that corporations would pay higher wages if their taxes were cut. Studies by the Bush and Obama administrations indicate that 18 percent to 24 percent of corporate tax cuts would fund pay increases for workers. Treasury Secretary Mnuchin stated, “Most economists believe that over 70 percent of corporate taxes are paid for by the workers.” He is trying to create the impression that 70 percent of the tax savings would be used to increase workers’ pay. In 2014 when the GOP introduced a similar proposal, the Congressional Budget Office, or CBO, estimated that the government will lose $100 billion of revenue over 10 years for every percentage point reduction in the tax rate. In other words, the Trump administration’s proposed rate cut from 35 percent to 20 percent would cost $1.5 trillion. Historically, tax rate cuts have been funded by changing tax accounting methods to “broaden the base,” subjecting a greater amount of income to tax. Typically, these measures involve the acceleration of income and the postponement or disallowance of deductions. Frequently these measures add tax law complexity. Tax specialists have looked at an exhaustive list of changes that could broaden the base, but these would only pay for about half of the corporate tax rate reductions. Furthermore, non-corporate taxpayers, including most mom-and-pop businesses, would see their taxable income increase. The simplest example of this phenomenon is the proposed disallowance of the interest expense deduction for business debt. Most small businesses depend on bank loans for a significant portion of their financing. Similarly, owners of rental properties typically finance their property acquisition with a mortgage. If Trump’s tax proposal passes, these taxpayers would experience a significant increase in their after-tax borrowing costs. Supporters of corporate tax reductions frequently say that the incremental taxes from the economic growth generated by the rate reductions will pay for those rate reductions. Apparently, that is only partially true. The “Better Way” tax proposal, circulated last year by House Speaker Paul Ryan, states that reducing corporate income taxes finances about a third of the rate reductions. (The proposal suggested that the remaining tax cuts be funded by a value-added tax based on consumption. Consumption taxes are politically unpopular and have since been taken off the table.) The CBO uses an approach called “static scoring” wherein it only considers the direct revenue impact of a tax proposal. It does not consider the impact of changes to the economy that will result from the proposal. Republicans favor the use of “dynamic scoring,” which attempts to consider the economic impact of the proposals. Because of its inherent subjectivity, the use of dynamic scoring is prohibited by Senate rules. Any way you look at it, a 15percent reduction in the corporate tax rate will cost the government at least $500-$750 billion over the next 10 years. Furthermore, a significant portion of the remaining tax burden is likely to be shifted to non-corporate taxpayers. I suspect that we will ultimately see two changes. The taxation of repatriated earnings will likely be changed to conform to global standards. The corporate tax rate cuts will probably be scaled back from 15 percent to 5-to-10 percent due to fiscal and political considerations. Unless Senator Mitch McConnell is able to utilize a reconciliation measure, it will take 60 votes in the Senate to pass tax reform – and the Democrats are not likely to favor a full 15 percent rate cut. Jim de Bree is a retired CPA who has spent over 40 years specializing in tax matters and studying tax policy His next column will analyze the impact of tax reform on individual taxpayers and is anticipated to appear next Saturday.