November 17, 2017
Senate Finance Committee approves 'Tax Cuts and Jobs Act'
The Senate Finance Committee on November 16, 2017, approved the "Tax Cuts and Jobs Act" on a party-line 14-12 vote after adopting a manager's amendment by Chairman Orrin Hatch (R-UT) that addresses various issues. No other amendments were adopted during the final day of the Senate Finance Committee's markup of the bill. The bill is expected to be considered on the Senate floor the week after Thanksgiving, with the goal of sending a final bill to President Trump for his signature by the end of 2017.
Changes in the manager's amendment include:
— Changing the effective date of the tightening of the proposed net operating loss deduction limitation to 80% of taxable income to tax years beginning after 2022 instead of 2023 (although an initial document said it would be effective after 2025)
— A transition rule so that the proposed changes to Section 162(m) do not apply to any remuneration under a written binding contract that was in effect on November 2, 2017, and was not materially modified thereafter
— Clarifying that the related-party rule of the excise tax based on investment income of private colleges and universities applies only to assets held for the educational institution and to investment income that relates to assets held for the educational institution
— Exempting regulated investment companies from the first-in first-out rule for the cost basis of specified securities
— Clarifying that charitable contributions and foreign taxes are taken into account in determining limitation on allowance of partner's share of loss
— Clarifying that the limitation on deductibility of net interest expense, which does not apply to certain regulated public utilities, also does not apply to certain electric cooperatives
— For the treatment of deferred foreign income upon transition to the participation exemption system of taxation, excluding the accumulated deferred foreign income from the REIT gross income tests
— Setting the Orphan Drug Credit rate at 27.5% and removing certain limits for previously approved drugs
— Adding a reporting requirement for research and experimental expenditures in tax years beginning after December 31, 2024
— Restoring the historic rehabilitation credit
New provisions include those to:
— Impose a three-year holding period requirement for qualification as long-term capital gain with respect to certain partnership interests received in connection with the performance of services (similar to the House bill)
— Increase the Section 4985 excise tax on stock compensation of insiders in an inversion from 15% to 20%
— Extend the free-file program for the IRS
— Make changes to the treatment of whistleblower awards
— Repeal the deduction for local lobbying expenses
— Add a new requirement for corporate taxpayers that pay dividends to shareholders, to report the total amount of dividends paid during the tax year and the first two and a half months of the succeeding year
Ranking Member Ron Wyden (D-OR) and other Democrats objected to the changes being unveiled late in the markup. The November 16 Committee markup began an hour later than scheduled in light of the release of the staff of the Joint Committee on Taxation's report on distribution effects of the Chairman's Modification to the Chairman's Mark (JCX-58-17), which was the subject of debate as the markup opened.
During hours of consideration today, the Finance Committee defeated on 12-14 party-line votes Democratic amendments, including those by:
— Senator Sherrod Brown (D-OH) to expand the Earned Income Tax Credit to childless workers, and expand the Child Tax Credit to apply it beginning on the first dollar earned
— Senator Wyden to make permanent individual tax relief under the bill, paid for through a sunset on the corporate title
— Senator Debbie Stabenow (D-MI) to eliminate all tax cuts provided under the bill for taxpayers with income over $1 million per year, and instead use the equivalent amount of revenue over the 10-year window to send a rebate check to working families
— Senator Tom Carper (D-DE) to reinstate the top income tax rate to pay for middle class tax relief
— Senator Bill Nelson (D-FL) to reinstate the personal exemption
— Senator Bob Casey (D-PA) to snap back the corporate tax rate cut if household incomes don't rise by $4,000 for taxa years beginning after 2019
— Senator Casey to prevent the legislation from going into effect if taxes would go up for those with annual incomes under $50,000
— Senator Carper to strike the reduction in the top individual tax rate
— Senator Mark Warner (D-VA) to trigger a reversion of the corporate tax rate and top individual tax rate to current law levels if Republican revenue targets are not met
— Senator Ben Cardin (D-MD) to increase the rate of the deemed repatriation rate to 7% for illiquid assets and 14% rate for liquid assets, like the House bill, and direct the revenue raised by the provision to a newly created Multi-Modal Trust Fund designated for infrastructure improvements
— Senator Casey to provide $500 billion in 100% tax credit bonds allocated to states and municipalities to finance infrastructure investments, funded in part through increasing the proposed rate on repatriation
— Senator Claire McCaskill (D-MO) to restrict eligibility of the 17.4% pass-through deduction to wealthy individuals
— Senator Casey to direct the Treasury Secretary to deposit $500 into a 529 college savings account established for every child whose parent(s) or guardian earn under $100,000 a year, paid for by retaining the Alternative Minimum Tax
— Senator Cardin to provide substance abuse treatment funding, paid for by reducing the bill's relief from the estate tax
— Senator Brown on Patriot employers, which would receive a tax credit up to $1,500 per employee for maintaining headquarters in the United States and paying fair wages and benefits, offset by an exit tax
— Senator Casey to provide affordable health coverage for those in their 50s and 60s
— Senator Stabenow to make the rate of taxation for the deemed repatriation dependent on a company's taxable payroll increasing by at least 5% annually
— Senator Michael Bennet (D-CO) to increase the maximum American Opportunity Tax Credit to $3,000 and otherwise expand and simplify tax relief for higher education and training
— Senator Nelson on job growth, to offset the cost for any new hire through a tax credit for qualified employers worth the employer portion of payroll taxes;
— Senator Brown to make income tax brackets more generous for the middle class
— Senator Maria Cantwell (D-WA) to strike the repeal of the deduction for state and local sales taxes not paid or accrued in a trade or business
— Senator Casey to require that companies receiving the preferential corporate and international tax rate report average and median international worker wages, including wages of employees for third-party contractors/vendors, and for each dollar the lesser of the two measures (average and median) is below the US minimum wage, the effective foreign tax rate on earnings would increase by one percentage point
— Senator McCaskill to restore the personal casualty and theft loss deduction
— Senator Bennet to redesign the Child Tax Credit under the Chairman's mark
— Senator Cardin to expand and improve the Saver's Credit
— Senator Nelson to combat identity theft-related tax refund fraud
— Senator Nelson to direct the IRS to work with the private sector to create a free online tool to help small businesses fill out their tax forms and file returns electronically
— Senator Stabenow to allow taxpayers that do not itemize their deductions to take an above-the-line deduction for charitable contributions, subject to limitations
— Senator Wyden to make permanent the CRAFT Beverage Modernization provisions in effect for two years under the bill
— Senator Cantwell to strike the modification to source rules involving possessions
— Senator Cantwell to strike the provision eliminating foreign base company oil related income as a category of foreign base company income from the Mark.
Senator Stabenow's amendment to repeal the Cadillac tax was ruled out of order. Senator Dean Heller (R-NV) said he supports repeal but that it is a "good amendment on the wrong piece of legislation." He said he would like to, by the end of the year, find an appropriate bill to address the issue.
Senator Cantwell's amendment intended to keep the base erosion and anti-abuse tax (BEAT) under the Chairman's Mark from inadvertently preventing banks with foreign parents or domestic banks with substantial foreign operations from taking advantage of the Low-Income Housing Tax Credit was defeated on an 11-14 vote. Staff indicated that the modified taxable income calculation under the BEAT provision would involve adding back in only the research credit, not other credits. Cantwell said wind and solar energy may have the same issue. Senator Chuck Grassley (R-IA) said the Committee should be certain about the issue because of the 2015 transition agreement for wind and solar that should not be changed. Republican senators expressed an interest in making sure this issue is addressed going forward, perhaps as the bill moves to the Senate floor.
An amendment by Senator Cardin to improve and/or make permanent the rehabilitation tax credit, the New Markets Tax Credit, and the Low Income Housing Tax Credit was defeated on an 11-14 vote. Senator Rob Portman (R-OH) said his understanding is that the New Markets Tax Credit would be addressed in a separate tax extenders package outside of tax reform.