Tax Reform Legislation Progresses on Capitol Hill
On Nov. 16, the U.S. House of Representatives passed a tax reform bill that lowers the corporate tax from 35 percent to 20 percent, reduces the number of tax brackets from seven to four, and limits state and local tax deductions. The Tax Cuts and Jobs Act (HR 1) passed in a 227-205 vote that was mainly along party lines, with 5 Republicans joining Democrats in opposition to the measure. The 5 Republicans who voted again the bill were from New York, New Jersey and California and oppose the bill’s provision that would eliminate deductions for state and local income and sales taxes. You can read more about the bill at: https://waysandmeans.house.gov/taxreform/
The House bill was revised to make a major concession to small businesses. The House plan now lowers the top rate from 39.6 percent to 25 percent for small businesses (excluding “service companies” like consultants and lawyers) and requires a complex formula where the 25 percent rate only applies to about 30 percent of the business income. 95 percent of American businesses are organized as pass through companies (LLCs, S-Corps, partnerships), and they “pass through” the business income to the owner's individual tax rate.
In addition, to help out the small “mom and pops,” the final bill has a 9 percent rate on the first $75,000 in income for business owners making $150,000 or less. But that tax break phases in, meaning it isn't fully available until 2022.
The Senate Finance Committee passed its version of the bill yesterday, and the full U.S. Senate plans to take up the after Thanksgiving. In addition to addressing tax rates, the Senate bill also repeals the Affordable Care Act, or Obamacare, individual mandate. (The House legislation does not address the individual mandate.)
Due to the Republican’s thin margins in the Senate, they will not be successful in passing tax reform if they lose more than two Republican votes. Several Republican Senators have expressed concern with various provisions of the bill and it remains to be seen if and how those issues will be resolved over the next week. You can read more about the Senate bill at: https://www.finance.senate.gov/taxreform.
Working with the LIFO Coalition, we are please to report that neither the House nor Senate versions of the bill alter existing LIFO provisions of the tax code.
ISSA is following the tax reform debate closely and will keep are members updated.