WASHINGTON, Nov. 16, 2016 - Forget the dreadful campaign season’s unqualified insults, condemnations and disavowals between GOP lawmakers and candidate Donald Trump: Republican leaders are pumped about prospects for tax reform.
When asked by a CNBC news interviewer the day after elections whether several important pieces of president-elect Trump’s tax reform plan aligned with House Republicans’ “Tax Reform Task Force Blueprint,” Ways and Means Committee Chairman Kevin Brady, R-Texas, declared, “Yes, yes, and yes!” Contacted by Agri-Pulse, an aide to Brady confirmed that the congressman would “will move quickly on tax reform in the new year.”
Well, said Pat Wolff, tax specialist at the American Farm Bureau Federation, the Trump and House GOP plans “are not exactly the same, but they’re similar.” She says what Ways and Means, the House tax-writing panel, extracts from the proposed blueprint, has good potential to benefit farm budgets. “The trick is that farmers and other businesses would have to give up deductions and tax credits in exchange for a lower tax rates.”
Authors of the blueprint say it would shrink taxes on earnings reinvested into new or expanded business or into savings, thus creating incentives for economic growth, but it would increase tax on consumer spending. The blueprint begins by eliminating all itemized deductions except the mortgage interest deduction and the charitable contribution deduction. Thus, for example, the deduction for net interest costs, a typically major write-off for farmers, would disappear. Until you know the details, Wolff says, “it’ll be hard to say whether you come out ahead or behind.”
Still, the House plan offers plenty for tax-scourged farmers and ranchers lick their chops:
• A consolidation of the seven individual income tax brackets, now up to 39.6 percent, into three brackets of 12 percent, 25 percent and a 33 percent maximum;
• The 25 percent rate would be the maximum applied to income of sole proprietorships such as farmers and other small businesses;
• The corporate income tax rate of 35 percent would be cut to 20 percent (Trump’s plan is to 15 percent);
• A consolidation of the standard deduction, personal exemptions for families and individuals into a larger standard deduction of $12,000 for single individuals and $24,000 for a married couple filing jointly. (For 2016 under current law, the standard for individuals is $6,300; for joint filers, $12,600);
• A full and immediate write-off (“expensing”) of all tangible and intangible investments (except for land);
• Termination of the federal estate tax (along with generation-skipping transfer taxes, applied when someone makes a gift that skips generations, such as from a grandfather to a grandchild).
Repeal of the estate tax – which some call the Death Tax – has long remained a priority item on the wish lists of AFBF and farm commodity groups that represent many large producers. It raises around $20 billion a year, which is less than 1 percent of U.S. tax revenue, yet the tax can collect big sums from the estates of large farms.
The House of Representatives voted 240-179 in 2015 to repeal the estate tax in a strong Republican move, and would likely vote similarly in the new congress, Trump has called for repeal as well. But Senate Democrats can be expected to resist unless, possibly, it is part of a tax reform bill that they can accept and that replenishes the lost estate tax revenue. Wolff notes that repeal of that tax “has never moved on its own” in Congress, but if attached to a big tax reform bill, “action to repeal or further roll back the estate tax” may be successful.
Look for farmers’ stakes in a broad tax reform bill to be as diverse as farms themselves. National Farmers Union President Roger Johnson says some members will welcome features such as the increased expensing deduction. “There’s some good and some bad, but I don’t hear our members talk about the need for tax reform,” Johnson says. He calls estate tax repeal “a great big red herring,” adding, “You get an $11 million exclusion right now, if you’re a married couple, before you pay tax dollar one on an estate.”
Upcoming House action, though, is a given. Says Wolff: “One thing you can say for sure: The debate on tax reform is going to speed up and be more serious. It could actually pass.” For farmers and ranchers, that means “opportunities for the tax code to treat them more friendlily.” Ways and Means Committee staff are drafting legislation for Brady and other House members, she says, and the panel will roll out its bill in January or February.
The Senate, meanwhile, may play a mediator role primarily, though Finance Committee Chairman Orrin Hatch, R-Utah, is working on tax reform measures with his committee as well. With an expected 52-strong GOP delegation for Republicans, but 60 votes needed to ensure Senate passage on most legislation, that panel may prove a melting pot for a tax bill tolerable to the House, to Trump and to a consensus-oriented Senate. That chamber may, for example, fashion bipartisan revision to reduce or fully exempt corporate income taxes (now at a 35 percent rate) on the foreign profits of U.S. multinational companies. Senators Chuck Schumer, D-N.Y., Rob Portman, R-Ohio, and other Finance Committee members proposed such changes last year.
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