GOP Senate no votes float tax-reform fix

Sens. Ron Johnson (Wis.) and Steve Daines (Mont.), the two Republicans who have said they cannot support the Senate tax-reform package in its current form, want to end a major tax break for big companies to help small businesses.

They say the tax bill needs to treat big companies and small- and medium-sized businesses more equally.

The legislation would permanently reduce the tax rate for big companies classified as C corporations to 20 percent while setting a top effective tax rate for many small businesses at 32 percent. The special rate for those “pass-through” companies, whose income is taxed through the individual tax code, would expire after 2025.

Johnson and Daines want to increase the deduction available to small businesses, which the Senate bill now sets at 17.4 percent, by not allowing big companies to deduct state and local taxes.

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Daines estimates it would raise between $100 billion and $200 billion, and Johnson says that would be enough to achieve acceptable tax parity between big companies and mid-sized and small businesses.

“Let’s treat all businesses equal when it comes to state and local tax deductions. We’re disallowing it for individuals, we’re disallowing for pass-throughs, we should disallow it for C corps,” Johnson said Monday evening.

“That immediately closes the disparity,” he added. “Now you return C corps to the true 20 percent rate.”

He estimates it would raise about $140 to $150 billion over the next decade and said “you can use that to pay down the rate for pass-throughs.”

“That might be the solution right there,” he said.

Daines said, “I’d like to see the SALT deduction removed from C corps,” referring to the deduction corporations receive for state and local taxes.

“That generates $100 billion to $200 billion in revenue right there, so it actually helps,” he said.

Johnson and Daines are the two GOP senators who have gone the farthest in threatening to oppose the tax bill, which is expected to come to the floor as soon as this week.

Johnson was the first to pledge opposition earlier this month when he told The Wall Street Journal on Nov. 15, “If they can pass it without me, let them.”

He complained about GOP leaders’ “process” of keeping the bill’s details secret until moving it quickly through committee and onto the floor.

Daines on Monday became the second Republican senator to voice opposition.

He warned that changes would have to be made and that he could not support it in its current form.

Senate negotiators scrambled on Monday evening to secure Johnson’s support ahead of a key vote on the package in the Senate Budget Committee scheduled for Tuesday afternoon or evening.

Johnson sits on the committee, which has 12 Republicans and 11 Democrats. If he votes against it and the Democrats remain unified in opposition, the bill would fail by a vote of 11-12.

Senate Majority Leader Mitch McConnell (R-Ky.) could still bring the legislation straight to the floor, but it would be an embarrassing setback.