Tax bill released

Club for Growth e-mail | December 16, 2017 | Rachel Slobodien

[Tolerance Sucks Rocks]

The conference committee for the tax bill released its draft this week, and it appears both houses will likely bring the measure up for passage early next week.

As we’ve said all along, the bill is not perfect, but there are some important victories that Club for Growth had been pushing for that were adopted in the revised version out of conference. Among the highlights include:

The back-door capital gains tax on individuals was removed.

Club for Growth President David McIntosh made the case against this provision in an op-ed in The Hill earlier this week. As David explained in his op-ed, the Senate bill included a provision that would have changed the way capital gains are taxed when investors sell off stocks. Under current law, the choice is up to the investor. Under the Senate tax bill, the government will force individual investors, but not mutual funds, to sell stocks under the FIFO (“first in first out”) principle under the assumption that stocks increase over time, and this will generate more revenue for the federal government. Fortunately, thanks to Club for Growth’s work to bring light to this issue, the conference report rejected its inclusion.

The repeal of Obamacare’s individual mandate.

This provision will allow over $300 billion in additional tax cuts, making the overall bill even more pro-growth. As Club for Growth stated before, this provision should not have been a point of contention. Thankfully, it did not become one. Additionally, repeal of the individual mandate in this legislation positions Congress well to tackle full repeal of Obamacare next year.

The top individual tax bracket will be reduced from 39.6 percent to 37 percent.

This reduction is something that Club for Growth urged Congress to make, we’re pleased to report the message was received.

The corporate tax rate will be 21 percent.

While Club for Growth and other organizations rallied earlier in the week to keep the corporate rate at 20 percent, the fact of the matter is 21 percent is an extraordinary improvement on the status quo rate of 35 percent.

While improvements were made from the House version of the bill, one problem that remains is the inequitable treatment of pass-through businesses or s corps. The new legislation places them at a competitive disadvantage when compared to the treatment of traditional corporations. Club for Growth is committed to rectifying this inequity, including by working with Congress next year to support legislation to address this shortcoming.

Beyond tax policy, this week brought great news on the fight to rein in out-of-control regulations. President Trump is delivering on his promise to cut back regulations. For example, in 2017 alone, federal agencies have issued 22 deregulatory actions for every one new regulatory action.

Additional regulatory rollback victories include:
• In total, agencies issued 67 deregulatory actions while imposing only three new regulatory actions.
• Federal agencies achieved $8.1 billion in lifetime net regulatory cost savings, the equivalent of $570 million per year.
• These savings go beyond the Administration’s goal of imposing no lifetime net regulatory costs in FY 2017.
• In contrast, the previous administration imposed between $5.7 billion and $15.2 billion in annualized regulatory costs in its final eight months in office. (Source: The White House)

[House Atreides]

“...one problem that remains is the inequitable treatment of pass-through businesses or s corps. The new legislation places them at a competitive disadvantage when compared to the treatment of traditional corporations....”
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I’m not sure I follow the “disadvantage”. Corporations will be taxed at a rate of 21% and then, when they pay dividends, the dividend income will be (DOUBLE) taxed at the individual’s rate of up to 37%.

The pass-through businesses will have their income taxed only once at the tax rate paid by the individual.

Of course, I may be missing something in my quick analysis.

[Attention Surplus Disorder]

Unless it has been changed, I believe ordinary dividends are taxed at 15%.

People always fret about “capital gains taxes” as if they are something to fear or dread. Cap gains taxes are about the lowest they have ever been, typically 15% even at the highest income levels. I suppose it would be a lot better if there were NO capital gains taxes but in fairness (whatever definition you please on that term) you *are* making income from dividends and sales of long-held assets; and if you are not, then the tax code has ways of carrying those losses forward and even backwards.

[House Atreides]

Yes, the individual tax rate on dividends are typically lower than the rate on other income. However, the point remains about double taxation.

[Gene Eric]

>> positions Congress well to tackle full repeal of Obamacare next year.

Wouldn’t it be amazing if Ryan and McConnell actually made that happen? Would definitely help in the midterms.

[familyop]

Here’s what’s in the final version of the Republican tax bill
Public Radio International
Reuters
December 17, 2017 · 9:15 AM EST
https://www.pri.org/stories/2017-12-17/heres-whats-final-version-republican-tax-bill

[Gene Eric]

A positive report. Thanks, TSR.

[familyop]

20% deduction for pass-through businesses. See the link in my comment just before this one.

[tumblindice]

But the individual mandate rescission doesn’t take effect for two years, in 2019? Why? Dammit.
And if cheap labor lovin’ Club For Growth is involved, this can’t be good for working Americans,
At least we’re seeing what’s in it and it is being debated, instead of being rammed down our throats, like Obamacare.

[Gene Eric]

Comments, not correcting nor disagreeing...

Generally, S Corps are not taxed on profits. Instead, the earnings are passed to the shareholders via Schedule K, and subsequently taxed as individual income — not capital gains. Cash from the S Corp to the shareholder is a distribution, not a dividend (e.g., cash received via investment, but not through participation.) Inevitably every year, I need to make that distinction between dividend and distribution — so confusing...

The classic C Corp is the ultimate non-person entity that, unlike us humans, will be taxed but not necessarily die. It generates revenue, pays salaries (and other expenses,) and may finally have some profits at the end of the fiscal year. Such profits are taxed at 35%. And whatever remains thereafter is “returned” to the investors/shareholders as dividends. Such dividends are taxed at 15%. Ultimately, the fed gets 50% of the C Corp’s profits. This is the “double taxation” factor.

BTW, small operations where the operators are also the investors should be sub-chapter S to avoid the unnecessary double taxation. On the other hand, the C Corp permits the sale of non-voting shares to raise capital with the expectation of returns (”dividends”) should the corp make money. Both corp types have the same legal “person” status, but with the critical difference of taxation and public ownership.

In my limited experience, C Corps are easier to manage financially and tax-wise. On the other hand, S Corps better reflect the “fair” expectations regarding taxation for small/family operations.

[Tolerance Sucks Rocks]

If I recall correctly, capital gains went back to 20% during the Fiscal Cliff brouhaha. Hopefully, I’m wrong.

[Gene Eric]

Curious about the details.

Partnerships, Proprietorships, and S-Corps are three completely different things each with “pass through” revenue.

[Zenjitsuman]

I think that was only for top end filers, most remained 15%