By Dan Calabrese ——Bio and Archives--November 10, 2017
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One asterisk in the Senate version is that the 20% rate would not begin until 2019 to “save” money under the Senate’s bizarre budget rules. But 100% expensing for businesses would be immediate, and expensing is more valuable against a higher tax rate. Economists we trust say this should mitigate any harm from a one-year delay. We’d prefer the immediate cut in the House bill, but a one-year delay is better than a temporary rate cut that would complicate business decisions in the future. The Senate bill is a notable improvement on the House in its treatment of “pass-through” businesses. These mostly smaller businesses now declare income on personal tax returns, and the House divorces the two with a top rate of 25% on businesses with a complicated formula for what income gets what rate. The Senate instead expands a deduction to allow a 17.4% discount against a top rate of 38.5% (down from 39.6%). The little guys thus do at least as well as corporations, which are taxed twice, on both income and dividends. The Senate’s approach is simpler, and businesses with income below the top tax rate can write off more income. This should win support from the National Federation of Independent Business, whose members are often small enterprises. (The House added a 9% bracket to get an NFIB endorsement.) Preserving the structure of the personal small-business tax rate also means that Congress could someday consider lowering the top marginal rate on individuals to spur more growth.Like the Journal, I would rather see both the rate cut and 100 percent expensing take immediate effect. (Truth be told, I'd rather make expensing irrelevant by going to a much lower rate that's levied on gross receipts, but hey. Maybe some day.) But if you make 100 percent expensing effective immediately, you will significantly reduce the taxable base on which the 35 percent would be levied in the one year it would have left. And by making the rate cut permanent, you would force any future Congress to at least go through the political challenges necessary to raise it again.
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