The U.S. House of Representatives and the U.S. Senate resolved their differences and passed a comprehensive tax reform package that will lower corporate tax rates, increase capital expensing, lower pass-through rates, and does not eliminate the important IC-DISC deduction.
The tax measure also includes individual tax reforms, and many other changes. In fact, many of the changes have not been ‘discovered’ within the large legislative package. This is the first major tax reform legislation in over 31 years since the 1986 package during Ronald Reagan’s second term in office.
As a way of comparison, in 1981 and 1986, the two major tax reform packages focused much more on the individual marginal tax rates versus the corporate taxes. However, since that time, many tax changes have been inserted into the tax code at various times making the tax code complicated and lopsided. Moreover, corporate tax rates have risen over the past 30 years while completely new industries that are not bound to the territorial tax system have emerged such as the information technology and social media industries. Additionally, global trade has enabled consolidation among large industry players and they have found tax havens outside the United States. This new tax plan hopes to bring back significant amounts of money that has been parked offshore because of the higher tax rates in the United States.
Some early tax revenue generation plans such as the border adjusted tax (BAT) were summarily dismissed early on. The BAT would have taxed imports into the U.S. in the attempt to raise over $1 Trillion over 10 years to be used on infrastructure projects. However, opposition from industries such as retailers and manufacturers killed this concept at the early stages making the large comprehensive tax reform smaller and more complicated as the tax writers searched for additional revenue and “pay-fors” – Congressional budget jargon. The scrap recycling industry raised concerns that materials that cross the border from Mexico and Canada would be unnecessarily subjected to the BAT making it uneconomical to purchase foreign scrap for domestic processing. ISRI argued that this tax system actually negatively disrupted trade and the U.S. scrap recycling industry, especially companies located near the two national borders.
Here are some of the major business provisions of the tax bill:
- Lowers the corporate tax rate to 21 percent beginning on January 1, 2018;
- Offers a 100 percent expensing provision for businesses to immediately write off the full cost of new equipment;
- Provides a 20 percent tax deduction that applies to the first $315,000 of joint income earned by all business organizations as S corporations, partnerships, LLCs, and sole proprietorships;
- Preserves the research & development tax credit;
- Eliminates the corporate alternative minimum tax; and
- Modernizes the international tax system enabling global companies to repatriate their profits back to the U.S.
For more information on the tax reform legislation, please contact Billy Johnson.