WASHINGTON, D.C. – Well the Republicans in the U.S. Senate and U.S. House have struck a deal on a tax bill compromise. ‘Compromise’ being the key word here, as the proposal is definitely a watered down version of the historic tax reform Republicans were promising over the last several months.
With narrow Republican majorities and a dearth of Democrats’ support for purely partisan reasons, each Republican, especially in the Senate, has a lot of sway over what goes in the bill. That gives the more Swampy characters in congress the ability to demand the kind of Big Government giveaways that the American voting public has been complaining about. This trend is evident in the inclusion of electric vehicle and wind power tax credits, or subsidies, in the compromise bill.
The muck of the Swamp can be found all over this tax bill, but overall the rate reductions and business friendly changes to the tax code make it a net positive for the American people, none of which would be possible if Hillary Clinton were president.
The driving forces behind the progress toward a bill that President Trump can sign into law before the end of the year, though, are political motivations. Republicans on Capitol Hill have to secure a notable ‘win’ on taxes before the 2018 spring primaries and fall elections. It is not as if most of these politicians really have a burning desire to cut your taxes, but rather a fire under their seat to get something done in order to maintain power.
Here are some of the notable results of the compromise tax bill:
“A less generous corporate rate cut. Republicans may cut the corporate rate to 21% from the current 35%, starting in 2018. The House and Senate versions had proposed a 20% rate. Despite making a 20% corporate rate his “red line” for a tax bill, Trump said at a meeting with the GOP leaders of the tax committees that he would sign a bill with a 21% rate.
A lower top individual tax rate. The top individual bracket would drop to 37% from the current 39.6%. The Senate version had proposed a 38.5% rate.
Keep the estate tax, but raise the threshold to qualify. Instead of phasing out the estate tax over time, as the House version proposes, the compromise bill would increase the threshold for an estate to qualify, to about $11 million from $5.6 million. That aligns with the Senate version.
A 20% deduction for pass-through businesses. Pass-through businesses — in which the owner books profits as their income, like a limited liability corporation or S-corp — would get a 20% deduction on their income. This is more similar to the Senate version but less generous than its proposed 23% deduction.
Repeal the corporate alternative minimum tax. The corporate AMT in the Senate version was a sore spot for many companies because it would have negated the effects of many popular deductions and credits, such as the research and development credit.
Adjust the cap for the mortgage interest deduction. The cap would be lowered to $750,000 from the current $1 million. This is higher than the $500,000 cap proposed in the House version. The Senate version would have left the deduction unchanged.
Does not include the House’s “Graduate Student Tax”: The House bill would have taxed tuition waivers for graduate students like normal income, which critics said could have crippled many universities’ graduate programs. Even some House Republicans came out against the provision. The Senate bill did not include that provision and the compromise bill will not either.
State and local tax deduction compromise: With a nod toward appeasing House members in states with high taxes, the compromise bill would allow people to deduct up to $10,000 in state and local property taxes or the same amount of income and sales taxes.
Keeps the Obamacare individual mandate repeal: This provision was in the Senate bill, but not in the House. Given the GOP’s desire to repeal and replace the healthcare law, it is likely to be agreeable to many House Republicans.
Keeps a slew of popular tax breaks: The bill, according to the Wall Street Journal, would preserve popular items including exemptions for medical devices, tax-free private activity bonds that are used by local governments to build things like hospitals, and the ability to deduct student loan interest.”
It is still possible, even likely, that the bill will undergo key changes between now and when the president puts pen to paper.
Some key wins for conservatives exist in the bill, such as the repeal of the Obamacare Mandate, but there are also plenty of special interest carve outs that dilute the true reform many were hoping for.
Details on other changes to individual income tax rates are not yet available, but President Trump is saying that Americans will have more of their own money in their paychecks come February of 2018. Hopefully that means the rate reductions on the rest of the scale are meaningful.
Wouldn’t it be nice if the folks in D.C. could pass one flat income tax rate like the Republicans of the Old North State have done?
As congress and Trump work to get this bill across the finish line, Americans are looking forward to Christmas with loved ones and hoping the Swamp can manage some New Year’s relief from the tax man.