Groups Urge Changes to Tax Bill on Minimum Tax, Passthrough Rate

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By Colleen Murphy, Laura Davison, and Kaustuv Basu

The House GOP tax bill is facing mounting opposition as lobbyists, and even some Republicans, are pushing the tax writers to alter the legislation to their liking.

The small business lobby—including the National Federation of Independent Business—multinational companies, and blue-state Republicans are wary of the bill, the Tax Cuts and Jobs Act ( H.R. 1). Some are refusing to back the bill unless the House Ways and Means Committee makes changes to address their concerns.

That pressure creates a delicate balancing act for the tax writers as they seek to compile a bill that can pass the House, meets their economic objectives, and stays within the $1.5 trillion of deficit additions they’ve been allotted.

Changes come as early as Nov. 3, when Ways and Means Chairman Kevin Brady (R-Texas) will have a chance to alter the bill.

House GOP members hope to pass this bill by the end of the month. A markup in the Ways and Means Committee is scheduled for Nov. 6.

The bill would overhaul the international tax framework, moving to what Republicans call a territorial system, and would implement deemed repatriation taxes, a foreign minimum tax, and an excise tax on domestic companies to their counterparts overseas. The changes could affect how multinationals structure themselves, especially those in the technology and pharmaceutical sectors that have established a complicated web of foreign subsidiaries and transfer pricing.

Old Economy?

“It’s an old economy bill. It rewards investments in tangibles,” Robert Willens, president of tax and consulting firm Robert Willens LLC in New York, told Bloomberg Tax. “It seems impervious to the fact that people now earn income from intangible income. We’re not in the industrial revolution anymore.”Senior Republican Ways and Means members signaled Nov. 2 that they were ready to engage with critics on the minimum tax, but also wanted to deal with the issue of base erosion.

“Take a look at this design because it does end the current practice of outsourcing jobs and earnings and profits and levels the playing field with our foreign competitors as well. We welcome the feedback,” Brady told reporters.

Rep. Peter Roskam (R-Ill.), chairman of the Ways and Means Tax Policy Subcommittee, said an urgent fix is needed to combat base erosion. “We need to come up with something. We need to come up with a remedy. We’re very interested. We’re looking for feedback,” he told Bloomberg Tax. “But the feedback has to be substantive. The feedback can’t say ‘we want a territorial system and no anti-base erosion rule. That’s a non-starter.’”

Americans for Prosperity, a group funded by billionaire brothers Charles and David Koch, is concerned about a 20 percent excise tax on deductible payments made from a U.S. corporation to a foreign affiliate.

AFP President Tim Phillips likened the excise tax to the border adjustment tax, saying it could amount to a consumer tax. “If not improved, this ‘BAT-lite’ provision has the potential to make everyday goods more expensive for millions of Americans,” he said in a statement.

Americans for Prosperity, along with retailers and importers, was vehemently opposed to the border adjustment tax, a levy on imports that could have impacted consumers. Republicans abandoned that idea after it threatened to undermine the overall bill.

SALT Debate Rages On

The curbing of the state and local tax deduction is also causing some GOP members to withhold support of the bill. Rep. Leonard Lance (R-N.J.) called a compromise to cap a deduction for property taxes at $10,000 “unacceptable.”

Other Republicans from high-tax states, such as Reps. Tom MacArthur (R-N.J) and Elise Stefanik (R-N.Y.), say they are continuing to talk with Brady about a solution. MacArthur told reporters Nov. 2 he wants the property tax cap at $12,500 and is currently undecided on the bill.

Rep. Frank A. LoBiondo (R-N.J.) also told reporters he opposes the bill.

Passthrough Problem

The 25 percent rate for passthrough businesses in the tax bill is already coming under fire.

The NFIB said after the bill’s release that it was concerned about the provision. A former Senate Republican aide said that opposition from the NFIB is potentially problematic, because the group’s concern is hard to fix—at least in a way that doesn’t make it look like a tax cut for the rich or blow a hole in the score.

Scott Greenberg, a senior analyst at the conservative-leaning Tax Foundation, said the passthrough issue could become a sticking point. “There will be some people attacking that on one side for being too generous to owners of passthrough businesses, while the passthrough business community has already criticized the rules for being too stringent,” he told Bloomberg Tax.

Costs Are Prohibitive

Republicans will likely need to tinker with the corporate tax rate down the road because keeping it permanent is expensive.

Cutting the corporate rate to 20 percent from 35 percent is estimated to cost $1.5 trillion, and allowing certain passthrough businesses to take advantage of a lower 25 percent rate would lose about $448 billion. Those provisions would be partially offset by limiting corporate interest deductions, eliminating certain credits, and preventing companies from moving their profits offshore.

Tax cuts for individuals would result in a net cost of $300 billion, when factoring in the repeal of deductions for state and local income and sales taxes, and limits on the property tax and mortgage interest deductions, according to the Committee for a Responsible Federal Budget. Repealing the estate tax by 2024 would add almost $200 billion to the tab, CRFB said.

With assistance from Erik Wasson (Bloomberg News).

To contact the reporters on this story: Colleen Murphy in Washington at cmurphy@bna.com; Laura Davison in Washington at lDavison@bna.com; Kaustuv Basu in Washington at kbasu@bna.com (Bloomberg BNA)

To contact the editor responsible for this story: Meg Shreve at mshreve@bna.com (Bloomberg BNA)

For More Information

A section-by-section summary of the bill is at http://src.bna.com/tVB.

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