House Panel Advances Tax Bill as GOP Seeks Vote Next WeekBy and
Bill estimated to cost $1.4 trillion over a decade, JCT says
Revised provision calls for boosting repatriation rate to 14%
The House Ways and Means Committee approved revisions to the GOP tax legislation that trimmed the bill’s cost while providing more tax relief to owners of partnerships, limited liability companies and other so-called pass-throughs.
Other changes would boost taxes on companies’ stockpiled foreign earnings, allow the estate tax to remain in effect for a year longer than House leaders originally proposed, reduce a tax break for businesses on their research spending and potentially limit undocumented immigrants’ access to the child tax credit that Republicans plan to enhance.
Combined, the changes put the bill within the $1.5 trillion limit set by the congressional budget.
The panel’s vote sends the measure to the House floor, with time for additional tweaks. New provisions including increasing the rates applied to companies’ offshore profits and changes to research and experimentation expenses would help to generate almost $180 billion, and result in a total cost of $1.4 trillion over a decade, according to an estimate from the Joint Committee on Taxation.
The last-minute rewrite from House Ways and Means Chairman Kevin Brady shows just what a difficult balance he and House Speaker Paul Ryan have to strike to incorporate demands from lawmakers and lobbyists, without blowing past the deficit limit of $1.5 trillion.
The bill could still change again when it’s considered by the Rules Committee. That panel could make revisions before sending it to the House floor.
Here’s an overview of some of the changes in the Ways and Means amendment:
The new version restores the adoption credit.
Originally, the House bill eliminated the credit, which is currently worth as much as $13,750 per eligible child. The change added $3.8 billion to the bill’s 10-year cost, the JCT found.
The amendment offers several provisions that the panel’s description said would make it easier for smaller businesses to succeed and grow. The changes include providing a new tax rate of 9 percent for businesses earning less than $75,000 in income. The benefit is phased out as taxable income exceeds $150,000 and fully phased out at $225,000. The National Federation of Independent Business supports the amendment and will back the bill, said Jack Mozloom, a spokesman for the group. NFIB had said it was opposed to the original legislation last week.
The bill would still limit access to the new 25 percent tax rate. For business owners, just 30 percent of their income would qualify for that rate; the remaining 70 percent would be treated as wages. Or they could use a formula based on their level of capital investment to determine how much income would get the new rate.
The amendment would also preserve current rules regarding the application of payroll taxes -- to reflect that such taxes wouldn’t apply to the 70 percent share of a pass-through’s income that would be treated as wages.
Together, the changes added about $148.6 billion to the bill’s 10-year cost, according to the JCT.
Child Tax Credit
The credit would be limited for families of children who don’t have Social Security numbers -- potentially affecting undocumented immigrants.
The House bill would enhance the credit to $1,600 from $1,000 for children under age 17, and would include an additional $300 credit for each parent as part of a consolidated family tax credit. Installing the new limitation would raise $20.4 billion over 10 years, according to the JCT estimate.
Thursday’s amendment quietly added an extra year to the life of the estate tax, which -- under current law -- applies a 40 percent levy against estates worth more than $5.49 million, or $10.98 million for married couples.
Eliminating the tax is a long-sought goal for conservatives. Originally the House bill would have repealed the tax after 2023. Now, that repeal is pushed back to after 2024. The change would raise $21.5 billion by 2027, the JCT found.
In any case, the House bill proposes to double the exemption threshold for the estate tax so that it would apply to fewer multimillion-dollar estates. (The Senate bill would include the same doubling, but not the repeal.)
Research and Experimentation Expenses
The amendment says that certain research or experimental expenses would be required to be capitalized and amortized over a five-year period, for expenses made during taxable years after 2023. Under current law, businesses can choose to deduct certain R&E spending from their taxable income immediately.
Requiring companies to spread out these write-offs would raise $108.6 billion from 2023 through 2027, according to an estimate by Congress’s Joint Committee on Taxation.
The amendment imposes an 8 percent surtax on life insurance company taxable income, which replaces parts of the original bill that had targeted deferred acquisition costs and reserves for companies in that sector.
The 8 percent surtax is listed as a placeholder. Still, the move is a “notable potential negative” for life insurers and could create substantial pushback from the industry, according to KBW Inc. analyst Ryan Krueger.
The JCT’s score for the surtax, and related provisions, found no 10-year effect.
The amendment says companies that use loans to finance their high-cost inventory -- such as car dealers -- will be given the ability to completely write off their interest payments. In exchange, those businesses won’t be able to immediately write off their capital investments.
The original House bill hadn’t specified that carve out when it called for limiting interest deductions to 30 percent of a company’s adjusted earnings.
Non-Qualified Deferred Compensation
The amendment scratches the provision that would have accelerated taxation of money put away into non-qualified deferred compensation plans. The change would increase the bill’s cost by $16.2 billion over 10 years, the JCT said.
The earlier version would have taxed deferrals as soon as they weren’t at risk of forfeiture instead of when they eventually paid out. That likely would have led hundreds of U.S. companies to scrap such programs altogether, affecting scores of top executives who use them to beef up retirement savings.
The amendment would boost proposed rates on trillions of dollars of U.S. companies’ overseas income to 14 percent on income held as cash and 7 percent on non-cash holdings.
The bill that Brady released a week ago proposed rates of 12 percent and 5 percent for companies’ offshore cash piles. The change raises an additional $70.3 billion over 10 years, JCT said.
— With assistance by Mark Niquette, Katherine Chiglinsky, and Anders Melin