After a flurry of last-minute amendments closely tracked by the American Bankers Association, the Senate overnight voted 51 to 49 to pass a sweeping tax cut and reform bill. Although the Senate bill resembles the bill passed by the House shortly before Thanksgiving in many ways, it must now be reconciled with the House legislation. Advocacy by ABA led to numerous improvements in the final Senate bill when compared to the initial bill text introduced two weeks ago.
“The Senate vote moves the nation another major step closer to enacting the most significant tax changes in a generation,” said ABA President and CEO Rob Nichols. “We particularly appreciate the provisions in this bill and the House legislation that lower business tax rates. Those changes will boost the economy and benefit all Americans.” The final bill sets the tax rate for C-corporations at 20 percent, although this is not effective until 2019.
Pass-through entity shareholders, including those of Subchapter S banks, would see an effective top tax rate of 29.6 percent, thanks to a 23 percent deduction from qualified business income. This marks an important improvement from the treatment of S-corps in the initial bill and reflects strong advocacy by ABA and other groups. “We appreciate that senators were willing to address the treatment of pass-through businesses in the legislation,” Nichols said. “Lowering the rate for these small businesses, including many community banks, will benefit the economy.”
Other key amendments in the final bill include a fix offered by Sen. Mike Rounds (R-S.D.) for a tax accounting issue affecting mortgage servicing rights. ABA staff continue to review the 479-page amended bill for other matters affecting banks.
While supporting the overall tax reform effort, ABA continued to be disappointed that the Senate bill failed to take the opportunity to address the distortionary tax advantages enjoyed by credit unions and the Farm Credit System. According to survey research released by polling company Morning Consult on Thursday, a majority of Americans support taxing large, bank-like credit unions to help pay for tax reform.