Corporate Taxes

House Moves Ahead With Tax Bill as Business Pushback Mounts

Google+ Pinterest LinkedIn Tumblr


WASHINGTON — The House forged ahead with its tax code rewrite on Tuesday as Republican leaders fended off attacks from Democrats, who assailed the tax plan as a gift to the rich, and from business groups that said the legislation would disadvantage multinational companies.

Representative Kevin McCarthy of California, the majority leader, said Republicans would focus on clarifying what was is and is not in the bill as the House tries to push it to a floor vote next week.

“The challenge to the American public is what is the truth about this bill,” Mr. McCarthy said. “I think what’s most important is we should state the facts.”

The congressional Joint Committee on Taxation released a new analysis of the bill’s potential impacts on Tuesday morning, which suggested tax cuts for lower- and middle-income taxpayers would fade over the course of a decade, more so than they would for high earners.

The committee’s analysis found that about 80 percent of tax filers earning between $50,000 and $75,000 would receive a tax cut from the bill in 2019, while about 10 percent would see a tax increase, with the rest experiencing no change. About three-quarters of filers earning more than $1 million would see a tax cut, while just under one quarter would see a tax increase. In 2027, two-thirds of millionaires would still see tax cuts, compared to three-fifths of those earning between $50,000 and $75,000.

The House Ways and Means Committee opened a second day of debate on the bill, which will continue through this week. The committee chairman, Representative Kevin Brady of Texas, said on Tuesday morning that he expected the bill to pass out of committee on Thursday and to move quickly to the House floor.

In an interview on Hugh Hewitt’s radio program, Mr. Brady said that the bill would not be subject to amendments on the House floor. But he also said that Republicans were still considering further changes to the bill, including possibly restoring tax breaks to encourage adoption and including a provision to repeal the Affordable Care Act’s requirement that most people have health insurance.

“We’ll work to continue to improve it at every step,” Mr. Brady said, “including as we send it to the House floor.”

That may be an uphill battle, as key groups begin coming out in opposition to parts of the bill, including a proposed excise tax of 20 percent on payments made by American companies to foreign affiliates. The provision is aimed at preventing American companies from shifting profits abroad through payments, such as royalties, made to subsidiaries or other foreign affiliates.

American multinational corporations are especially concerned about the proposal, which would raise just over $150 billion over a decade. They say the tax will wind up harming American companies and their consumers.

On Tuesday, the American Forest and Paper Association said it was “very troubled” by the provision, which it said “would lead to massive over-collection of tax in the United States.” The provision is also coming under fire from pharmaceutical companies and the small-government advocacy groups spearheaded by the billionaire Republican megadonor brothers Charles and David Koch, who are trying to generate opposition to the excise tax from other conservative groups.

Tim Phillips, president of Americans for Prosperity, a conservative advocacy group funded by the Koch brothers and their network of donors, called the provision “misguided.”

A prominent conservative group, the Club for Growth, criticized the House bill on Tuesday for what it called “four serious shortcomings,” including maintaining the existing top tax rate on millionaires and phasing out the estate tax instead of repealing it immediately.

But other groups continued to praise the bill, even as they worked behind the scenes to shape it more to their liking. The Business Roundtable, an influential lobbying group in Washington, announced a multimillion dollar national advertising campaign, including television, radio and digital ads, urging members of Congress to approve a bill. The ad features the line “Congress promised tax reform, and Congress needs to deliver.”

With the process underway in the House, business groups and other lobbyists began turning much of their attention to the Senate, which is expected to introduce its own version of the bill on Thursday.

At a news conference with Republican senators and Trump administration officials, Senator Ted Cruz of Texas expressed concern that House Republican plans to repeal the state and local tax deduction for sales and income tax could mean higher tax bills for people in some states. He also lamented that the House plan does not repeal the Affordable Care Act’s mandate that most people have insurance. He echoed Mr. Trump’s call to eliminate the provision that is central to the health law.

“I think we need to do even more to provide a tax cut, not just tax reforms, but a tax cut to every American,” Mr. Cruz said. “I think there is a path forward, that actually President Trump laid out last week, which is repealing the individual mandate — the I.R.S. tax — from Obamacare.”

The future of the estate tax also remains unclear. While the House bill would phase out the tax that generally only hits the rich, some senators are skeptical that doing so is fiscally responsible.

Steven Mnuchin, the Treasury secretary, said, “The president is interested in repealing the estate tax,” but suggested that he has bigger priorities in the tax bill.

The Ways and Means Committee’s bill-drafting session started on Tuesday with Democrats proposing an amendment to curb the ability of Republicans to add to the deficit with tax cuts.

“What we are incurring is immense debt at immense cost to the American people just to benefit a handful of people at the top and some multinational corporations that don’t believe in paying their taxes,” said Representative Lloyd Doggett, Democrat of Texas.

But Democratic amendments appeared to be going nowhere.

Republicans on the committee did approve a package of changes to the bill on Monday, moving to tighten restrictions on so-called carried interest, alter rules aimed at preventing American companies from stashing profits offshore and further restrict a tax credit claimed primarily by low- and middle-income workers.

The changes came as part of an amendment submitted by Mr. Brady. The panel, voting along party lines, approved the amendment on Monday night as the official process of debating the bill began.

Among the most significant changes is a provision that would aim to close the so-called carried interest loophole, which Democrats and some Republicans call an unwarranted tax break for the wealthiest Americans. A substantial portion of the compensation of hedge fund and private equity executives is derived from the investment gains that their funds generate. Under the current tax code, that compensation is treated as capital gains, meaning it is taxed at a rate of 23.8 percent, well below the 39.6 percent income-tax rate that now applies to the top tier of individual earners.

Mr. Brady’s amendment would require investors such as hedge fund managers and real estate developers to hold on to assets for three years to qualify for the lower capital gains rate on their income. The move seeks to weed out those who use the loophole to avoid paying ordinary income tax rates on their earnings. Mr. Brady, speaking on CNBC, said the effort was intended to “make sure it really is focused on those long-term, traditional real estate partnerships.”

Carried interest has been the subject of intense political debate. President Trump said repeatedly on the campaign trail that hedge fund managers should not use the loophole to pay lower taxes than middle-class Americans working jobs with salaries.

Some Democrats called the change toothless.

“The tweak to carried interest seems like a feint so that they can pretend they are doing something to close loopholes for Wall Street,” said Seth Hanlon, a fellow at the liberal Center for American Progress and a former economic adviser to President Barack Obama. “The policy change does nothing to address the fundamental inequity of carried interest, which is that fund managers can get preferential capital gains rates for providing services.”

He added, “Requiring them to hold onto the interest longer is beside the point.”

Other changes to the bill included tweaks to the treatment of the earned-income tax credit, which is primarily used by lower- and middle-income workers. Eligibility for the earned-income credit, essentially a wage supplement for the working poor, depends on income and family size. About 26 million people received the credit last year, and the average credit was more than $2,400, according to the Internal Revenue Service.

Mr. Brady said the change was intended to “protect the integrity” of the tax credit by reducing improper claims. The amendment would require employers to provide more payroll information about their employees and give the I.R.S. more power to verify the pay that workers report.

The amendment would also exempt more universities from an excise tax on their investment income. The original plan included a 1.4-percent tax on the investment income of private colleges and universities with at least 500 students and assets of $100,000 or more per full-time student. The new plan would apply to schools with assets worth at least $250,000 per student, which would affect Ivy League universities and other wealthy private colleges.

Mr. Brady’s amendment does not mention the repeal of the Affordable Care Act’s “individual mandate,” which requires most people to have health coverage. Republicans have been considering a repeal of the mandate to free up money for tax cuts and undo a provision of the health law that they have long opposed. On Monday night, Mr. Brady suggested that idea was still in play. “I’ve been asked by the president and members to consider that, and I have asked for an updated score,” he told reporters, referring to a budgetary assessment. “That’s as far as that has gone at this point.”

The changes to the House tax legislation came as Senate Republicans were preparing to release their own bill. With a narrow majority in that chamber, Republicans may struggle to pass a bill without any support from Democrats. In an effort to galvanize some support across the aisle, the White House has dispatched Marc Short, director of legislative affairs, and Gary D. Cohn, director of the National Economic Council, to meet with Senate Democrats on Tuesday to discuss the tax plan.

Nicholas Fandos contributed reporting.


Wendy Pettit

Wendy Pettit is a writer for NYT and writes for other publications on her spare time. She lives in Chicago with her husband and her dog Zuko.

Write A Comment

%d bloggers like this: