So what’s going to be in the bill? Washington is awash in rumors about what’s in and what’s out of the compromise version of the House and Senate tax bills. Various news organizations report that Hill Republicans are moving towards a 37 percent top individual income tax rate and a 21 percent corporate rate. They may also split the difference between the House and Senate limits on the mortgage interest deduction, settling on a $750,000 cap on total indebtedness. Ways & Means Chair Kevin Brady adds the usual warning: “Nothing is agreed to until everything is agreed to,” he says.
Will Congress vote on a final bill next week? Maybe, according to Rep. Tom Cole of Oklahoma. House Majority Whip John Cornyn told Roll Call that a deal on the Tax Cuts and Jobs Act could be complete by next Tuesday. This timeline assumes a lot of dealmaking between now and then.
Talking of a technical correction bill, already. Brady is predicting one early next year. Given the inevitable mistakes and unintend consequences of rushing through a complex tax bill in a matter of weeks, the corrections bill may be pretty big. Will it also become a vehicle for more substantive changes?
One more study in the “costs too much” pile. The Penn Wharton-Budget Model released its dynamic analysis of the Senate TCJA yesterday. The report states that “even with assumptions favorable to economic growth," the bill would add more than $1.5 trillion to the nation's debt over the next 10 years. That’s roughly consistent with TPC’s analysis.
“Sunrise, sunset…” Phase-in, phase-out… TPC’s Howard Gleckman and Daniel Berger illustrate the Senate TCJA’s delayed effective dates, sunsets, and phase-outs. They’re not pretty, because they “create exactly the sort of uncertainty that lawmakers claim to hate, and businesses really do hate.” Plus, the House has a bunch of its very own. And the conferees could well add even more.
Facebook is making some tax changes. It will overhaul its tax structure to pay tax in the country in which it earns profits. It will no longer use an Irish subsidiary, a move that affects how Facebook pays taxes in 30 countries. Says Facebook CFO Dave Wehner: “We believe that moving to a local selling structure will provide more transparency to governments and policy makers around the world…”
Territorial taxation is no easy task. TPC’s Eric Toder has a new paper that explains the difficulty in moving to a territorial system for taxing the income of multinational companies. Provisions of the TCJA, while reducing the incentive for companies to hold past profits overseas, would retain incentives to shift investment overseas and book new profits overseas. It would continue to place some US companies at a competitive disadvantage compared to foreign-based companies. But, the proposed 20 percent corporate income tax rate would reduce these distortions, compared to current law.
Will California make tax changes too? If the new federal tax law repeals the state and local deduction except for $10,000 in property taxes, will California shift its revenue focus? The New York Times’ Adam Nagourney writes, “It might make sense for state lawmakers to figure out a way for Californians to pay more in property taxes, where they can take a federal deduction, and less in income taxes.” One catch: California law requires a two-thirds majority vote to overturn Proposition 13, which caps property taxes. Other Californians are wondering if it is possible for people to make tax-deductible charitable gifts to the state instead of paying non-deductible taxes.
And Hill Republicans are moving on to the next tax bill. Ways and Means Republicans introduced bills to repeal or delay many of the tax provisions of the Affordable Care Act, including the medical device tax and the Cadillac tax on high-cost employer-sponsored health plans. Repeal of these taxes has significant backing among Democrats too.
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