A GOP senator sharply criticized the Joint Committee on Taxation (JCT) for its analysis of the Republican tax plan, saying he disagreed with their prediction of the bill’s effects on corporations.
Both the House and Senate versions of the tax bill would lower taxes for pass-through businesses, such as sole proprietorships and partnerships, which pay taxes through the individual code. However, the two bills take different approaches in how they achieve that goal, with the House setting a top rate for certain pass-through income of 25 percent and the Senate providing a 23 percent deduction for pass-through income. The Senate’s pass-through provisions expire after 2025.
“Pass-through” businesses, also called S corporations, are only taxed once at the shareholder level on individual tax forms, while income from traditional C corporations is taxed twice, once at the corporate level and once at the shareholder level.
In an interview with John Catsimatidis on AM 970 in New York, Sen. Ron Johnson (R-Wis.) said that the JCT is in “la la land” for predicting that under the Senate plan pass-through corporations won’t adjust their classification to avoid changes to taxes.{mosads}
“I’m really concerned that if we don’t close that widened disparity between pass-throughs and C-corps, we will incentivize pass-throughs to convert to C-corp status, and we will hemorrhage revenues to the federal government. A lot of my colleagues aren’t really focusing on that. And the Joint Committee on Taxation is completely in la la land denying that potential reality,” Johnson said in the interview.
The bill, which passed in the Senate last week, would lower tax rates for individuals through 2025 and permanently cut the corporate tax rate from 35 percent to 20 percent. The bill’s tax cuts for individuals are temporary in order to comply with budget rules that the measure can’t add to the deficit after 10 years.
The JCT analysis, which was released last Saturday, found that the Senate tax bill would cost $1.45 trillion over the next 10 years.
“Whoever wrote the framework [of the new tax bill] recognized that when we lower the C-corp rate down to a competitive 20 percent you can’t leave the pass-through entities behind. Which is why we came up with the 25 percent pass-through rate,” Johnson said.
Johnson says in the interview that while the conference negotiation process isn’t “pretty,” the GOP tax-reform plan will be stronger when it emerges.
“This is the sausage-making process, John. It’s not pretty,” Johnson said. “But I’m really confident we will have strong pro-growth tax reform when this all gets passed.”
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