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Senate tax bill delays corporate rate cut to 2019, but makes 100 percent expensing immediate
Just as good?
If the ups and mostly downs of the financial markets yesterday are any indication, the business community doesn't like the idea that the cut in the corporate tax rate from 35 percent to 20 percent might be delayed until 2019. That's in the Senate bill that was released late last night, and it was done to make the static budget analysis look better and help the bill qualify for reconciliation under the Senate's insane fiscal policy rules.
But the Senate did some other things on corporate taxes that are actually better than the House version:
One asterisk in the Senate version is that the 20% rate would not begin until 2019 to “save” money under the Senate’s bizarre budget rules. But 100% expensing for businesses would be immediate, and expensing is more valuable against a higher tax rate. Economists we trust say this should mitigate any harm from a one-year delay. We’d prefer the immediate cut in the House bill, but a one-year delay is better than a temporary rate cut that would complicate business decisions in the future.
The Senate bill is a notable improvement on the House in its treatment of “pass-through” businesses. These mostly smaller businesses now declare income on personal tax returns, and the House divorces the two with a top rate of 25% on businesses with a complicated formula for what income gets what rate. The Senate instead expands a deduction to allow a 17.4% discount against a top rate of 38.5% (down from 39.6%). The little guys thus do at least as well as corporations, which are taxed twice, on both income and dividends.
The Senate’s approach is simpler, and businesses with income below the top tax rate can write off more income. This should win support from the National Federation of Independent Business, whose members are often small enterprises. (The House added a 9% bracket to get an NFIB endorsement.) Preserving the structure of the personal small-business tax rate also means that Congress could someday consider lowering the top marginal rate on individuals to spur more growth.
Like the Journal, I would rather see both the rate cut and 100 percent expensing take immediate effect. (Truth be told, I'd rather make expensing irrelevant by going to a much lower rate that's levied on gross receipts, but hey. Maybe some day.) But if you make 100 percent expensing effective immediately, you will significantly reduce the taxable base on which the 35 percent would be levied in the one year it would have left. And by making the rate cut permanent, you would force any future Congress to at least go through the political challenges necessary to raise it again.
I have no doubt that a determined enough Democrat majority would do so, but first they have to win the majorities and the White House (or, I guess, roll a future Republican president like they did David Cop-A-Feel back in the day). That's much better than passing a rate cut with a sunset that simply jacks it back up automatically at a date certain.
Remember, if you don't like delaying the rate cut a year - and I don't - the target on which to focus is the Senate's budget reconciliation rules. The Senate cannot pass a bill via reconciliation if it increases deficits over a 10-year period as defined by the Keynesian economists at the Congressional Budget Office, and even though we have a Republican majority that could change these rules, they refuse to do so.
This is why the Senate is so often the problem with passing pro-growth legislation. Old-timers like John McCain and Lindsey Graham think these rules are great, because they make the Senate different from the House. They're wrong. The House can pass good bills on a simple majority vote. The Senate is where these good bills go to die because the idoitic budget rules make it so easy for the Democrat minority to filibuster them to death. That makes the Senate different all right, and not in a good way.
In this case, the bill may still be worth passing because of the changes the Senate made to offset the year delay, but it's not as good as it could be, and that's a direct result of the moronic rules that John McCain loves, and that Mitch McConnell won't even try to change.
If you really want to drain the swamp, start by reforming the United States Senate so that all legislation can pass on a simple majority vote. Few things would make a greater impact than that.
Dan's new novel, BACKSTOP, is a story of spiritual warfare and baseball. Download it from Amazon here!