Fourth and Final Report: House Ways and Means Committee Markup of H.R. 1, Tax Cuts and Jobs Act
As we await the release of the Senate’s “conceptual draft,” we wanted to report on progress in the House. Following a four day markup, the Ways and Means Committee favorably reported the Tax Cuts and Jobs Act (H.R. 1) out of Committee along party lines (24-16).
The House is expected to vote on the bill next week, with leadership working hard in the interim to ensure that it has the necessary votes.
We believe the informal whip process has begun, but are hearing that the formal whip check will likely occur Monday (November 13).
During today’s markup, following several additional Democratic amendments that were voted down, Chairman Kevin Brady (R-TX) introduced a Manager’s Amendment that made various changes to the House tax reform proposal. Below, we report on the highlights of today’s markup and provide a brief overview of the latest developments in the Senate:
- Manager’s Amendment: Chairman Brady introduced a Manager’s Amendment intended to bring the bill’s impact on the deficit below the $1.5 trillion reconciliation threshold. The Manager’s Amendment, which was also approved along party lines (24-16), makes the following changes, among others:
- Repatriation: Raises the tax rates on deemed repatriated earnings from 5% to 7% for illiquid assets and from 12% to 14% for cash;
- Pass-Throughs: Provides for a 9% tax rate for the first $75,000 in net business taxable income of certain pass-through businesses, instead of the ordinary 12% rate;
- Interest Deductibility and Expensing: Businesses with “floor plan financing indebtedness”(e.g., auto dealers) would no longer be subject to limits on interest deductibility, but would also no longer be able to take advantage of full and immediate expensing.
- Private University Endowments: Expands a 1.4% excise tax on private university endowments to include all assets formally held by organizations related to the university (i.e., not just direct assets);
- Research and Development (R&D) Tax Credit: Requires companies to amortize their R&D expenses over five years;
- Adoption Tax Credit: Preserves the adoption tax credit; and
- Individual Mandate: Notably, the Manager’s Amendment did not include a provision repealing Obamacare’s individual mandate.
- Estate Tax: Members spent considerable time debating repeal of the estate tax. Rep. Judy Chu (D-CA) introduced an amendment to maintain the estate tax, arguing that repealing it amounts to a “giveaway” to the “richest 0.2% of Americans.” Ranking Member Richard Neal (D-MA) and other Democrats also expressed support for keeping the estate tax, arguing that only the wealthiest reap the rewards of its repeal. Nearly every Republican, however, voiced their opposition to the estate tax – calling it a “penalty” on small businesses and farms. In particular, Chairman Brady and Rep. Kristi Noem (R-SD) stressed that the estate tax is “devastating” for property-rich, but cash-strapped family farms and businesses and called it “un-American.” Rep Chu’s amendment failed on a party line vote (14-24).
- Historic Tax Credit: Rep. Terri Sewell (D-AL) introduced an amendment to maintain the historic tax credit, arguing that the credit provides a critical incentive for economic development in cities and towns. Rep. Devin Nunes (R-CA), however, argued that repealing these types of credits allows for lower rates, adding that the bill allows for transition relief to those who currently claim the credit. Rep. Pat Tiberi (R-OH) acknowledged broad support for the historic tax credit and pledged to work on “a way to preserve some of these tax credits,” but did not express an intent to vote for the amendment. Ultimately, Rep. Sewell withdrew her amendment, thus avoiding a recorded vote.
- Wind Energy Tax Credit and Electric Vehicle Tax Credit: Rep. Earl Blumenauer (D-OR) introduced an amendment to preserve the current treatment of the wind energy production tax credit. Chairman Brady indicated that he is listening to Members on renewable energy tax credits and looking “for ways to improve the bill.” Reps. Mike Kelly (R-PA) and Tom Reed (R-NY) added that they look forward to working with Rep. Blumenauer on energy policy solutions, but did not vote for the amendment. As such, the amendment failed on a party line vote (15-22). Note, too, that Rep. Sandy Levin (D-MI) expressed support for the electric vehicle tax credit, which would be eliminated in the bill but is rumored to be preserved in the Senate’s proposal….
- Domestic Manufacturing Deduction: Rep. Ron Kind (D-WI) introduced an amendment seeking to preserve the Section 199 domestic manufacturing deduction. The amendment was quickly disposed of along party lines (16-24).
And now, all eyes turn to the Senate…
- Earlier today, the Senate Finance Committee released the policy highlights of its tax reform bill. While we are awaiting additional details, here is what we believe to be the case so far:
- Imposes a permanent 20% corporate tax rate (which is phased-in beginning in 2019);
- Provides for full and immediate expensing of capital investments;
Protects the ability of certain (yet to be defined) “small businesses” to deduct interest;
- Maintains the current $1 million cap on the mortgage interest deduction;
- Preserves the Low-Income Housing Tax Credit (LIHTC) and R&D Credit;
- Shifts to a territorial system of taxation; and
- Eliminates the “lock-out effect” for American multinationals
- Senate Timing: The Senate Finance Committee plans to release detailed “descriptions” of its proposal – along with tables by the Joint Committee on Taxation (JCT) – prior to its markup, which is expected to begin on Monday, November 13. A floor vote is not expected until after Thanksgiving, but Finance Committee Chairman Orrin Hatch (R-UT) indicated today that he still thinks they can have a bill toPresident Donald Trump’s desk by the end of the year.
Link to DESCRIPTION OF THE CHAIRMAN’S MARK OF THE “TAX CUTS AND JOBS ACT”
More to come once we know additional details on the Senate bill. In the interim, please let us know if you have any questions.