New Yorker Magazine’s Andy Borowitz spoofed that a scribbled drawing by one of Senate Majority Leader Mitch McConnell’s grandchildren made its way into the GOP-backed tax cut bill approved late last week. With time to read the bill this week, people may uncover a lot worse than scribbling tucked away in the Senate measure’s 477 pages.
Nothing will be final until a House-Senate conference committee resolves differences in their tax cuts and the compromise goes back to both chambers for final passage. Media coverage will focus on the size of the corporate tax rate decrease, the number of individual taxpayer brackets, the impact on the federal deficit, benefits accruing to wealthy taxpayers and the fate of the Obamacare individual health care mandate.
There also will be stories searching the shadier corners of the tax bill and how they got there.
Wielding a copy of the Senate tax bill with what appeared to be margin notes as amendments, independent Maine Senator Angus King told Face the Nation that a bill to cut corporate and individual tax rates would take, at most, 50 pages. He wondered aloud on camera what the remaining 420 or so pages contain. “We’re going to find some really stinky stuff,” King predicted, pointing to provisions dealing with oil and gas extraction.
One of the clear winners in the GOP tax-cut legislation, according to Tony Nitti writing for Forbes, are tax attorneys and CPAs. “As an American taxpayer, I’m saddened by the way the process played out. As a tax adviser, I’m downright giddy. The eventual signing of the Senate bill into law, regardless how it is ultimately married with the House bill, will signal the start of hunting season for tax professionals who…will find ample opportunity to game the system and minimize their clients’ tax liability.”
“Business owners or managers that plan well and pay for good advice will be able to achieve much more favorable rates,” Adam Looney, a senior fellow at the Brookings Institution and a former Treasury Department official, told The New York Times. “I’m not sure if that is a loophole or the intent of the legislation.”
So much for a simple tax code. But who benefits from all the complexity? Nitti offers one example. The Senate version reduces the depreciation period for rental property from 27.5 years to 25 years and excludes landlords from a limitation on mortgage interest deductions. The House version piles on landlord benefits by capping pass-through taxation at 25 percent, as opposed to the current law 39.6 percent.
Another headscratcher was a decision by Senate Republicans to retain “bonus depreciation” for corporations at the expense of retaining the corporate minimum tax.
The eventual tax bill could have unintentional effects. The Hill.com ran a story saying, “Preemptively removing private activity bonds as a financing tool for infrastructure projects would undermine the stated goal of Congress to leverage a $1 trillion investment in our nation’s infrastructure.” Eliminating the tax deduction on private activity bonds was included in the House GOP tax cut bill to save $40 billion over the next decade.
Published stories in the last few days have pointed out other buried provisions in the House and Senate tax measures:
- Elimination of a tax credit for pharmaceutical companies to develop drugs for so-called orphan medical conditions;
- Elimination of a tax credit to small businesses who provide accommodations for workers or customers with disabilities;
- Elimination of the New Markets Tax Credit intended to spur investment in communities with high unemployment or poverty rates;
- Eliminates deduction for student loan interest;
- Eliminates deduction for sexual harassment settlements with gag orders;
- Allows unborn children to qualify for college savings accounts;
- Reduces taxes on beer and wine;
- Lowers taxes on storing and staffing private jets;
- Retains ability by banks to avoid taxes by making payments to offshore subsidiaries;
- Allows up to $10,000 per year from 529 college savings plans to pay for religious schools and some home schooling;
- Excludes car dealers from any limitation on interest deductions; and
- Provides an employee credit for paid family and medical leave, except for employees in states that require paid family and medical leave.
While the merits and demerits will be discussed ad nauseam in the days ahead, the evidence is pretty clear that the legislation billed by Republicans as a middle-class tax cut is at once a whole lot more – and less – than that.