As the legislative process continues for the first major tax code overhaul in three decades, Senate Finance Committee Chairman Orrin Hatch (R-Utah) yesterday released his own draft of tax reform legislation. Meanwhile, the House Ways and Means Committee voted to approve an amended version of the tax plan its leaders released last week. The bill is expected to see a vote on the House floor next week. The vote was 24-16 along party lines.
“We applaud Chairman Hatch and the Senate Finance Committee for unveiling a comprehensive tax reform proposal to grow the economy and create jobs, and we congratulate Chairman [Kevin] Brady and the House Ways and Means Committee for successfully passing the House proposal out of committee,” American Bankers Association President and CEO Rob Nichols said. “We are encouraged by the progress to date and the administration’s willingness to make tax reform a top priority.”
Key provisions in the Senate bill include:
- A corporate income tax rate for C corporations of 20 percent, but not implemented until 2019
- A 17.4 percent deduction for business income from “pass-through” entities, including Subchapter S banks — limited to 50 percent of the individual taxpayer’s W-2 wages — a different structure for pass-through taxation than in the House bill
- Restrictions on net interest deductibility similar to the House bill, with taxpayers prohibited from deducting net interest expense exceeding 30 percent of adjusted taxable income
- The same homeownership provisions but subject to different caps — higher than in the House bill — going forward
- Eliminating the deduction for deposit insurance premiums for banks with over $50 billion in assets and phasing in the elimination for banks with $10-50 billion in assets
- Broadening the tax base by partially eliminating historic tax credits and repealing net operating loss carrybacks
“As with the House proposal, we are carefully reviewing specific provisions in the Senate bill that could affect our members and our customers, including the treatment of pass-throughs, interest deductibility and limits on the deductibility of FDIC premium payments,” said Nichols. “We are particularly concerned that the current pass-through treatment in both bills could have unintended consequences on community banks that operate as Subchapter S businesses. We appreciate the willingness of the committees to work with us on this issue.”
Nichols also expressed his disappointment that the Senate bill fails to address the outdated, distortionary tax subsidies to credit unions and the Farm Credit System. “Lawmakers looking for appropriate and responsible ways to pay for tax reform should start with the billions in misguided tax subsidies these groups receive while offering the same services as taxpaying bank,” he commented.
The Senate Finance Committee is expected to begin considering its bill on Monday, and the House bill is expected to receive a vote on the House floor late next week. “ABA will continue to support tax reform, while engaging with lawmakers in both the House and Senate to ensure that any final plan achieves the economic growth, jobs, and fairness the American people deserve,” Nichols said.