The final tax-reform package vaunted by Republican lawmakers and President Donald Trump is expected to be released Friday with several major compromises on tax rates and deductions that will affect farmers and small businesses for years to come.
Lawmakers and their staffs were cautious not to share text on Thursday on the bill, which is projected to cost $1.5 trillion. Still, most news outlets were reporting major details of the Senate and House compromise. Based upon multiple news reports, those include:
— A corporate tax rate lowered from 35% to 21%, which will amount to 1% higher than both chambers initially passed in their earlier versions of the bill. President Trump said Wednesday he could support a 21% corporate rate.
— A top tax rate of 37% for individuals, down from the current 39.6%, for couples filing jointly with a taxable income above $470,000.
— A 20% deduction for pass-through entities, which is down from the 23% deduction originally in the Senate bill. So far, there are no details on how the deduction will be limited, but the Senate bill originally limited the deduction to 50% of wages paid by the business. The initial Senate bill also had language that would allow farmers to take the deduction if they receive a payout from a cooperative.
Despite the push to eliminate the estate tax, it will remain, but the asset exemption will double to $11 million for an individual and $22 million for a couple.
The effective impact of a 37% tax rate and a 20% deduction for pass-through income would set a top tax rate on business income at 29.6%.
The bill also eliminates the tax penalty for not buying health insurance, dropping the mandate from the Affordable Care Act. In another health-insurance related measure, the final tax bill will keep the ability to deduct medical expenses above 7.5% of adjusted gross income.
Still, without specific legislative language to examine, there are a lot of issues that remain unclear for farmers and other small businesses. Several differences between the House and Senate bill haven’t been fleshed out, such as how Section 179 deductions will be treated. The House bill had five years of unlimited expensing, while the Senate bill had a permanent $1 million annual cap.
The House bill also allowed cash accounting for businesses with up to $25 million in revenue, while the Senate bill limited cash accounting to businesses with $15 million in annual income.
Lawmakers will still be debating the possibility of a separate tax-extenders package that would deal with issues such as the biodiesel tax credit. It appears, however, a compromise was reached to stick with a deal passed by Congress in 2015 that begins phasing out the wind-energy Production Tax Credit this year before the credit expires in 2020. House members from major wind-energy states wrote the tax-bill conference committee on Wednesday, noting that eliminating the tax credit immediately would jeopardize more than $30 billion in wind development projects.
“Going back on the deal would be devastating for Iowa’s wind energy producers. If the policy is ended prematurely, it will undermine $30 billion in existing project deals. I will continue to fight for Iowans and renewables which have helped Iowa’s economy grow,” said Rep. David Young, R-Iowa.
Once the tax bill is released sometime Friday, Congress is expected to move quickly. The Hill reported Thursday that Senate leaders would push for a procedural vote on Monday and move to a final Senate vote on Tuesday despite Democratic demands to seat Senator-elect Doug Jones from Alabama before a final vote. The bill would then go to the House for a final vote.
The problem with that timetable, however, is it also leaves no margin for Republicans to lose votes. Sen. Bob Corker, R-Tenn., had already indicated he opposes the bill. Early Thursday afternoon, the Washington Post reported Sen. Marco Rubio, R-Fla., said he opposes the bill because it doesn’t include a larger Child Tax Credit that he had called for to benefit more lower-income and middle-class Americans.
Vice President Mike Pence could be needed in the Senate to vote next week if the bill becomes deadlocked in a tie.
The conference bill seems to mark the end of the Section 199 Domestic Production Activities Deduction, despite a push by farmer cooperatives to save the deduction, which was valued at $2 billion for agricultural cooperatives. Kevin Paap, president of the Minnesota Farm Bureau Federation, told DTN that eliminating Section was 199 was a major topic of sugarbeet cooperatives at recent meetings.
“It was the hottest topic at the Minn-Dak (Farmers Cooperative) meeting,” Paap said.
Paap said some of the provisions in the final tax bill aren’t as exciting in the current economic environment for farmers. “I’m not so concerned about rapid depreciation right now,” he said. “I’m worried more about black ink.”
Paap added that farmers right now are more focused on the trade situation with the North American Free Trade Agreement because their incomes are low enough that some of the tax provisions won’t affect them in the short-term.
“Trade really is our safety net,” he said. “If prices were higher, it wouldn’t be as much of a big deal.”
Chris Clayton can be reached at Chris.Clayton@dtn.com
Follow him on Twitter @ChrisClaytonDTN