Tax cut deal makes corporate rate cut effective in 2018

A win for growth

, --December 14, 2017

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Tax cut deal makes corporate rate cut effective in 2018 One of the worst things about the Senate tax reform bill prior to conference committee is that it delayed implementation of corporate tax rate cut until 2019. It did this so the bill could fit under the 10-year window beyond which the Senate's goofy budget rules demand there be no projected deficit increase. (And if you want to know what's wrong with that, we've discussed it at length.) The House bill made the corporate cut effective in 2018, because the House doesn't have to comply with the Senate's idiotic rules. Good news: It's now coming out that the conference committee report makes the cut effective in 2018. The price we paid for this is that the rate's being cut from 35 percent to 21 percent, instead of to 20 percent. But it's still a massive cut and it still takes effect right away. That's a big win for those of us whose priority is to see this tax reform prioritize economic growth:
The corporate rate would be 21%, the people said. That is higher than the 20% rateRepublicans included in the House and Senate tax bills. It would take effect in 2018. The Senate bill had delayed that rate cut—from today’s 35%—until 2019. Mr. Trump, who had said he wanted a 15% rate, then drew a red line at 20% before expressing openness to going as high as 22%, on Wednesday said he “would be thrilled” with a 21% corporate rate. “We want to give you the American people a giant tax cut for Christmas. And when I say giant, I mean giant,” Mr. Trump said in a speech at the White House on Wednesday. “Our current tax code is burdensome, complex and profoundly unfair.” The agreement is also expected to eliminate the corporate alternative-minimum tax, the people said. Keeping that, as the Senate bill did, would have undercut the value of many popular business-tax breaks, including a research-and-development tax credit. The bill would retain the individual alternative minimum tax with exemptions for incomes up to $500,000 for individuals and $1 million for married couples, much higher than current law. Republicans are considering a 20% income deduction for so-called pass-through businesses such as partnerships and S corporations, which pay taxes through individual returns. That is lower than the 23% deduction in the Senate bill, but when combined with the lower top tax rate on ordinary income, it equates to a nearly identical 29.6% top rate on that income for pass-throughs. The bill also would include some version of House language letting pass-through firms qualify for a tax break based on their capital investment, a GOP aide said. The final agreement is expected to steer clear of some of the more controversial changes in the House plan, including taxes on graduate-student tuition waivers, the repeal of deductions for student-loan interest and medical expenses and the end of tax-free private activity bonds used for projects such as hospitals and affordable housing.
It was unclear how Republicans made these changes and stayed within the $1.5 trillion tax-cut limit they set for themselves. House and Senate negotiators have been working this week to reconcile the tax-cut bills that have passed each chamber and had been narrowing their differences. Republicans are now working on writing the legislative text of the tax bill, getting official revenue estimates and making final decisions. Votes on the final proposal could start as early as Monday as Republicans try to wrap up their work before they leave Washington for the year. The Senate is expected to vote first.

Bill is keeping the alternative minimum tax

I'm disappointed that the bill is keeping the alternative minimum tax for anyone, even if it is just individuals who earn $500,000 or more, or married couples who earn $1 million or more. It's a terrible tax that punishes you if you take advantage of legal deductions, and there's no reason that should be done to anyone regardless of how much they earn. But at least they eliminated it for a lot of people, and eliminated it entirely for corporations. I find it astonishing, and a sign of where we've come to as a nation, that this bill is polling poorly. I suspect it's mostly the result of negative media coverage, which claims it will explode the deficit and focuses who "who-wins-who-loses" calculations with almost no emphasis on the primary reason for the tax reform, which is to turn around the terrible economic growth we've had for the past decade. That is far more important than any of the things that get attention in news coverage, but it's usually the last thing that's talked about if it's mentioned at all.

Decades of dopey news coverage have made them economically illiterate

People are reacting to peripheral issues with no focus on the one the matters most, because decades of dopey news coverage have made them economically illiterate. Even so, I find the whole phenomenon striking. I came of age at a time when Walter Mondale took a huge risk and said in a debate with Ronald Reagan that he would raise taxes. He then claimed that President Reagan would do the same thing but wouldn't tell us about it. The gambit backfired big time. Saying you'd raise taxes was the dumbest thing you could do if you wanted to be elected president, and Mondale lost 49 states. The political lesson Republicans took from it was that cutting taxes is a winner, and raising them is a loser. Most still operate according to that belief. But 1984 was a long time ago, and apparently the public now sees taxes as more of a class-by-class proposition. They want "the rich" (i.e. anyone who makes more than you make) to pay by the boatload, but they don't want their own taxes raised. That's stupid, anti-growth policy, but no one thinks like that anymore. And the public has largely bought into the proposition that the more money the government collects for itself, the better, because we need to prioritize "deficit reduction." Over the past decade the Treasury has collected more money than at any other time in our history, and we've also had the largest deficits in our history. So tell me how well that's working. What we need is faster growth and spending restraint, in that order. Republicans are taking a political risk here that delivering the faster growth will remind the public of why it used to like tax cuts. Maybe the larger take-home pay most will see can help get things moving in that direction.

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Dan Calabrese——

Dan Calabrese’s column is distributed by HermanCain.com, which can be found at HermanCain

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