Now that Congress has again failed to repeal or replace the Affordable Care Act (ACA), President Trump and Republican leaders in Congress have turned their attention to reforming the nation’s tax system.
Last week, The Trump administration, the House Committee on Ways and Means, and the Senate Committee released a unified framework they developed together.
“The framework was presented as a starting point for negotiations on a tax deal. Congress has to debate, craft and vote changes into law,” said Shawn McBurney, the Society of American Florists’ senior director of government relations. “Republican leaders and the chairs of the tax writing committees in the House and Senate are now tasked with establishing the details of tax reform to unite their party behind specific legislation and to work with Democrats to pass the measure.”
While most of the attention has been on provisions involving personal taxes, there are also a number of provisions that would change business taxation.
The framework would reduce the corporate tax rate from the current 35 percent to 20 percent and aims to eliminate the corporate alternative minimum tax (AMT). Unlike the House Republican Blueprint, which was developed in 2016 and made full expensing permanent, the new framework allows five years of full expensing, and the deduction for net interest expense “will be partially limited,” according to McBurney.
Other highlights:
- Pass-through entities such as S-corps, LLCs and sole proprietorships will get a tax rate of 25 percent. The framework goes on to state, “the committees will adopt measures to prevent the characterization of personal income into business income to prevent wealthy individuals from avoiding the top personal tax rate.”
- The framework also proposes to eliminate the estate tax, and seeks to eliminate many business credits — except business research and development credits.
In a letter from the Small Business Legislative Council, a coalition of associations representing small businesses, SAF urged that any tax reform plan retain the deductibility of employer contributions to employee health insurance and retirement plans. If the deductions were eliminated, the coalition noted, employers would be far less likely to contribute towards an employee’s retirement savings. (The framework was silent on those issues.)
“It is now up to the House Ways & Means Committee and the Senate Finance Committee to approve legislation that will put specific details on what the general framework proposes,” McBurney explained. “The details are going to also be complex and controversial. This will be an issue where the details will be fought over all the way until the end of this process.”
