Late Friday, House and Senate tax committee leaders released the final legislative text of the tax bill that has been approved by the conference committee tasked with reconciling the two chambers’ bills. As reported in Newsbytes on Thursday, the bill sets the tax rate for C corporations at 21 percent, effective in 2018, and provides a 20 percent deduction for Subchapter S banks and other pass-through entities. Both houses of Congress are expected to vote on the measure early next week, and news reports indicated that the bill had received enough support to pass.
The bill represents a major advocacy win for the American Bankers Association. “ABA believes the significant reforms included in this legislation will help grow the economy and create jobs,” said ABA President and CEO Rob Nichols. “We particularly applaud the provisions that significantly lower tax rates for all types of businesses beginning in 2018. Banks currently have one of the highest effective tax rates of any industry, and these important changes will allow our members to better serve their customers and the broader economy.”
Other key provisions of the final bill include:
- A top individual tax rate of 37 percent
- Elimination of the corporate alternative minimum tax
- Capping the mortgage interest deduction for new mortgages of $750,000 or more
- Retention of the low-income housing and new markets tax credits
- Deductibility of net interest expense limited to 30 percent of adjusted gross income for businesses with more than $25 million in annual gross receipts
- Elimination of net operating loss carrybacks with a limitation on carryforwards
While supportive of the overall tax reform effort, ABA remains disappointed that Congress failed to seize the opportunity to address the historic inequity in the tax treatment of credit unions and the Farm Credit System. “Congress should treat businesses providing the same services the same way and that is not happening today,” Nichols said. “We will continue to argue for a level playing field until Congress ends this inequity.”
In an email to bank CEOs today, Nichols recapped ABA’s patient and strategic advocacy approach and thanked the bankers and ABA staff who have spent much of the year engaged with policymakers on tax reform. He also outlined important victories that ABA won throughout the process, including a careful approach to limiting net interest deductibility, a pass-through rate that provides more benefits than Subchapter S banks would have initially seen, the removal of provisions affecting deferred compensation and maintenance of key tax credits.
With the new year fast approaching, ABA continues to urge banks to review the tax bill with their auditors, board members and examiners to address any implications on regulatory capital and earnings, including from revaluing deferred tax assets and liabilities. “We still believe this legislation as a whole will benefit our members, their customers, and the country,” Nichols said. ABA also released a staff summary of the final bill.