Sen. Ron Johnson, a Wisconsin Republican, says he's opposed to the revised Senate GOP tax plan because it doesn't do enough to help partnerships, limited liability companies, S-corps and other pass-through businesses.
"It doesn't really address the core problem as I understand it," Johnson said. "We're moving in the wrong direction."
Johnson said his main concern is that the corporate rate will be slashed to 20% from 35%, while the top pass-through rate won't fall as much. He said he's frustrated that the Senate proposal doesn't slash the top pass-through rate to 25% — as was outlined in the framework released by the White House and congressional leaders in September — and ultimately will make pass-throughs less competitive compared to corporations.
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Currently, businesses organized as pass-throughs don't pay income tax themselves, instead passing earnings to their owners, who pay at their individual rates. The top rate is currently 39.6%, but the Senate plan would cut it to 38.5%.
The original Senate proposal called for a 17.4% deduction for non-wage income for certain pass-throughs, with restrictions. It prevented pass-through businesses classified as S-corps or partnerships from taking full advantage of the 17.4% deduction. And it set caps —such as $150,000 for married couples —for businesses to get the deduction's full benefit.
The latest plan removes those restrictions and allows all pass-through structures to deduct 17.4% from their business income —up to $500,000 for married couples —which would be taxed at ordinary income tax rates.
"The people who wrote the framework acknowledged that if you are going to lower corporate rates to 20%, we can't leave pass-through businesses behind," Johnson said. "Both the House and the Senate bill leave those pass-through businesses behind."
"I plan to do everything I can to produce a better tax bill," said Johnson.
The revised pass-through proposal is estimated to reduce revenue by $362 billion over a decade, so providing more generous terms would increase that cost. The Senate proposal would cost $1.41 trillion over a decade. Under budget rules that GOP leaders plan to use to fast-track their bill, it must stay under $1.5 trillion and it can't add to the long-term deficit.
Senate Republicans have a slim majority and can afford to lose only two GOP members if they want to pass a bill without any Democratic support. A revised version of the Senate proposal released late Tuesday night calls for repealing the Obamacare individual mandate.
Reopening the politically painful Obamacare debate could cost the GOP crucial votes on a tax bill. A "skinny" repeal of Obamacare that scrapped the individual mandate failed in July to pass the Senate after defections by John McCain of Arizona, Susan Collins of Maine and Lisa Murkowski of Alaska.
When Collins was asked if it were a mistake to mix health care and taxes, she answered with an emphatic "yes."
From: Bloomberg News
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