Taxes

Senate Republicans Screwed Up Their Own Tax Cuts

JM Ashby
Written by JM Ashby

The dirty secret in America is that many corporations don't actually pay a 35 percent corporate tax rate. In fact, many don't pay any taxes at all and are actually subsidized by tax breaks that produce a negative rate.

America is not a high tax business environment, as Republicans like to say.

But that could change under a provision added to the Senate Republican tax bill during the final hours just so Majority Leader Mitch McConnell could buy the support of Senators Ron Johnson and Susan Collins

McConnell apparently added an alternative minimum tax (AMT) to pay for carve-outs for various senators. The problem is the AMT is the same rate as the rest of their cuts.

Susan Collins wanted a $10,000 property tax deduction for Americans in high-tax states; Ron Johnson wanted a 23 percent business-income deduction for the company that his family owns. This left the Senate Majority Leader searching under the tax code’s couch cushions for new sources of revenue. [...]

The GOP had originally intended to abolish the AMT. But on Friday, with the clock running out — and money running short — Senate Republicans put the AMT back into their bill. Unfortunately for McConnell, they forgot to lower the AMT after doing so.

This is a big problem. The Senate bill brings the normal corporate rate down to 20 percent — while leaving the alternative minimum rate at … 20 percent. The legislation would still allow corporations to claim a wide variety of tax credits and deductions — it just renders all them completely worthless. Companies can either take no deductions, and pay a 20 percent rate — or take lots of deductions … and pay a 20 percent rate.

As you might imagine, corporations aren't happy about the idea of paying an AMT since many of them don't actually pay income taxes right now and they didn't plan to start paying taxes in the future.

The Senate can go back and cut or eliminate the AMT they added at the last minute, but that will require passing the whole package again without the carve-outs that enabled its passage to begin with. If they cut or eliminate the AMT without also cutting the carve-outs, it will put the bill above the $1.5 trillion threshold required under the reconciliation process.

On the other hand, there's nothing stopping the Republican-controlled House of Representatives from passing the Senate bill as is and sending it to Trump's desk, flaws and all. That does seem unlikely, however, because House Republicans apparently hate the AMT that McConnell added.

"I think that both the individual and the corporate AMT — it's costly, it's complex — really on the business side, undermines many of the pro-growth and pro-American provisions in the tax code," Rep. Kevin Brady, R-Texas, who is set to lead the House and Senate conference committee, told CNBC's "Squawk Box" on Tuesday.

You might say this is a consequence of rewriting a 500 page bill at 1 a.m. on a Friday night and then passing it without even reading it.

  • Christopher Foxx

    The dirty secret in America is that many corporations don’t actually pay a 35 percent corporate tax rate.

    It’s a secret? Do the hundreds of millions of people who know about it realize that?

  • muselet

    You might say this is a consequence of incompetents rewriting a 500 page bill at 1 a.m. on a Friday night and then passing it without even reading it.

    FTFY.

    –alopecia

    • Christopher Foxx

      You might say this is a consequence of Republicans rewriting a 500 page bill at 1 a.m. on a Friday night and then passing it without even reading it.

      FTFY.

      Actually, on second thought, all I did was say the same thing you did.

  • Username1016

    LOL. This isn’t the first time I’ve been profoundly grateful for their incompetence — it blunts the edge of their malevolence. Lock them up!

  • ninjaf

    Yeah, no pity for them. Make a mockery of democracy and you will be the one with egg on your face.

  • Draxiar

    It actually kind of fun and acid reflux inducing to watch the shit sausage making.

  • Ha ha!