House Republican leaders today unveiled a draft of sweeping tax reform legislation — the first major overhaul of the tax code in more than three decades. The 429-page draft includes numerous provisions affecting banks, and American Bankers Association staff experts are reviewing it thoroughly to understand its impact on the financial sector.
ABA President and CEO Rob Nichols welcomed the bill’s introduction as “an important and positive step toward finally reforming our nation’s tax code. We appreciate that [Ways and Means Committee] Chairman [Kevin] Brady and the committee recognize that a lower tax rate is necessary for all U.S. businesses, including America’s banks, to be more competitive in the global market.”
Key provisions in the bill include:
- A corporate income tax rate for C-corporations of 20 percent
- An income tax rate of 25 percent for passive income from “pass-through” entities, including Subchapter S banks (with potential restrictions on the ability of active shareholders to claim the lower corporate rate)
- Restrictions on net interest deductibility, with businesses whose average gross receipts exceed $25 million prohibited from deducting net interest expense exceeding 30 percent of adjusted taxable income
- Retained homeownership provisions but subject to new caps 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 eliminating new markets and historic tax credits and net operating loss carrybacks
“We are in the process of evaluating the proposal against those principles, and we are encouraged by our initial analysis,” Nichols said, noting that ABA is looking closely at the provisions on net interest deductibility, pass-throughs and homeownership incentives and is concerned about the FDIC premium proposal.
“We are disappointed the House has not taken this critical opportunity to address the tens of billions of dollars in outdated, unfair and unreasonable tax advantages enjoyed by credit unions and the Farm Credit System,” Nichols added. “We will continue to make the case that businesses offering similar services should be treated equally under the tax code.
The House Ways and Means Committee is expected to take up the legislation starting Monday for at least a week. As amendments are made affecting banks, ABA will provide information to members. ABA staff will release a more thorough analysis of the bill’s provisions in the coming days. For more information, contact ABA’s John Kinsella or Curtis Dubay.