Closer and closer to a deal? The Tax Cuts and Jobs Act conference committee will have its first open meeting on Wednesday. However, House GOP leaders say the bill is not likely to reach the floor this week. President Trump tweeted yesterday that Congress was “getting closer and closer” to finalizing the bill, and said the “[e]nd result will be not only important, but SPECIAL!”
But the bill is contrary to most of Trump’s promises. The Washington Post reviews the GOP’s promises about tax reform. While the president and his aides repeatedly promised a tax cut that would mostly benefit middle-income households, the TCJA is primarily a tax cut for business and high-income taxpayers. It’s an “evolution that shows how traditional Republican orthodoxy swamped Trump’s distinctive brand of economic populism as it moved through Washington.”
Will jobs go to workers, or robots? NPR examines the business incentives embedded within the current GOP tax plan. There aren’t any that specifically encourage hiring of workers. But the bill expands incentives to buy robots and machines for production.
Will there be a mass conversion of businesses from partnerships to C-corporations? Both the House and Senate versions of the TCJA would cut the corporate tax rate from 35 percent to 20 percent but set a higher rate for pass-throughs. Senator Ron Johnson of Wisconsin believes that “if we don't close that widened disparity between pass-throughs and C corps, we will incentivize pass-throughs to convert to C corp status, and we will hemorrhage revenues to the federal government.” He’s not alone in his thinking, as The Los Angeles Times reports.
Will individuals decide to restructure themselves as limited liability corporations? The New York Times explains how under Senate TCJA provisions, “the amount you make may be less important than how you make it.” The plan applies a higher tax rate to employee wages and salaries than to income earned by proprietors, partnerships, and closely held corporations. Citing TPC, it reports that “employees who earn more than $24,000 could be taxed at a higher marginal rate than a contractor who earns the same wages in the Senate tax plan.”
Who would pay for the TCJA? TPC’s Bill Gale writes about the central finding of a new paper that addresses the distributional effects of the House and Senate versions, including alternative ways of paying for the costs of tax cuts. "If you consider plausible ways of financing either... bill, most low-and middle-income households would eventually end up worse off than if the bill did not become law. In other words, they would lose more from inevitable future spending cuts or tax hikes necessary to eventually offset the costs of the tax bill than they would gain from the tax cuts themselves."
These may be the least of the conference committee’s problems. Slate lays out the scenarios in which the tax deal sought by the committee could fall apart. The bills differ in the way they treat the state and local tax deduction, the corporate and individual alternative minimum taxes, individual income tax brackets, and the corporate tax rate. Plus Marco Rubio continues to try to expand the child tax credit by raising the corporate rate. Thus, “conference negotiators are under pressure to find some hundreds of billions of dollars in new revenue to keep the bill’s net cost within $1.5 trillion over the next decade.” And they aren’t even assured of Senator Susan Collins’ vote anymore.
Oh, and people still don’t like this bill. A new USA TODAY/Suffolk University Poll finds that only 32 percent support the GOP tax plan. This is the lowest level of public support for any major piece of legislation enacted in the past 30 years. Should the bill pass, this might be good news for Democrats looking toward 2018 elections. But tax historian Joe Thorndike explains in TaxNotes (paywall) that “when voters head to the polls, it seems unlikely that taxes will be the deciding factor — no matter how unpopular this tax bill might turn out to be.”
If you’d like to tell us about a new research paper or have any comments about the Daily Deduction, TPC’s summary of the day’s tax news, email Renu Zaretsky. You can sign up here to receive the Daily Deduction as an email newsletter every weekday morning (Mondays only when Congress is in recess) at 8:00 am.
