SL Chamber webinar
Brice Wallace
If you thought the presidential election was contentious, the next few months could see more of the same in a GOP-dominated federal government.
Among the first tasks for the new Congress will be whether to extend, modify or let die certain provisions that are part of the Tax Cuts and Jobs Act passed in 2017. Many of those provisions will expire at the end of 2025 if Congress does not act.
“And many people are not watching this,” Ginger Chinn, executive vice president of public policy and government affairs at the Salt Lake Chamber, said while prefacing a recent chamber webinar about the issue. “I think we were so caught up with the election that this is one issue that we really weren’t paying too much attention to, but now we need to really start paying attention to that.”
Among provisions in limbo that could have an impact on businesses are the corporate tax rate, cut from 35 percent to 21 percent in the 2017 bill. Chatter on cable news channels indicates there is a taste to alter it although it is not scheduled to sunset. “But we all know that any law can be rewritten, so it’s permanent for now,” said Justin Lumadue, vice president of government affairs at the U.S. Chamber of Commerce.
U.S. Rep. Blake Moore, R-Utah, said that when state and local taxes are added, companies are paying an effective tax rate of 26 percent or more. That puts the U.S. in the band of competitiveness in the international community.
“If we are above that, then companies will take their business elsewhere,” Moore said, explaining that companies would offshore their equities, production and labor.
More tenuous than the corporate tax rate is the future of a 20 percent deduction for qualified pass-through income for sole proprietorships, partnerships and S-corporations. The deduction aimed to level the playing field for small and medium-sized businesses by making their tax burden similar to how the TCJA’s corporate tax rate cut did for C-corporations. If the TCJA expires, the deduction, also known as Section 199A, will no longer be available and pass-through business income would then be taxed based on individual income tax rates.
Other 2017 act elements also are in jeopardy, including a doubling of the standard deduction, a doubling of the child tax credit, and a doubling of the threshold of the “death tax.”
“So, you have an enormous amount of things that are going to expire. … A lot is going on,” Moore said. “There are millions and millions of pieces in play.
“Every single income level will pay noticeably more in taxes come 2026 if Congress does nothing over the next nine months, let’s say. … We’re trying to get this done even quicker.”
For its part, the U.S. chamber has been working to determine impacts at the state and congressional district levels and trying to make local data “as digestible as possible,” Lumadue said. “A big part of what the U.S. chamber is doing is trying to make this as real and data-driven for members of Congress as possible,” he said.
In Moore’s district alone, more than 49,000 taxpayers take the 199A deduction, saving them $459 million in taxes, he said.
“That’s money that can be reinvested. That’s money that you can utilize to grow your business instead of sending it back to Washington so it can be repurposed elsewhere,” Lumadue said.
If the corporate tax rate were increased from the current 21 percent to 28 percent, the district would see lost wages of $512 million over 10 years, $999 million in higher prices for consumers during that time, and $260 million in lower returns for shareholders, he said.
“Really, the dynamics here are huge,” Lumadue said.
Webinar speakers said a couple of factors are complicating matters. One is determining the impact that any changes will have to the federal deficit. The 2017 act grew it by $1.5 trillion.
Traub said House members are committed to a smaller net deficit impact, while the Senate is open to a bigger impact but unwilling to concede on a smaller amount. “You can’t really act until the parties agree on what the net increase on the deficit would be” on a bill affecting the 2017 act, he said.
The 2017 act cut taxes but nonetheless raised revenue over time because of stronger economic output, Moore said. However, he added, if Democrats were to get the corporate tax rate to anything over 30 percent, the result would be a revenue increase but also some stagflation or lower economic output, he said.
So many possible changes, and degrees of changes, to the 2017 act make it difficult to figure out the deficit impact, Traub said. For each factor, Congress could extend them, eliminate them, reduce them or cut the time they would remain in place, or put the focus on cutting overall spending.
“I literally could keep going for hours,” he said. “Those add many, many more billions of dollars to the equation, and so the challenge facing Congress is, ‘OK, we have to somehow fit 7 trillion pounds of sugar into a 2 trillion pound sack,’ and that’s really hard to do.”
The first step is to agree on that deficit increase target, he said.
“Republicans have a lot of things they want to do … and don’t have the intestinal fortitude to raise the deficit by that much,” Traub said. “They will not likely have the intestinal fortitude to cut spending by that much, so something has got to give.”
Another wrinkle to iron out is getting all congressional Republicans to agree on things. “There are going to be bumps in the road,” Lumadue said. With narrow majorities in both the House and Senate, GOP members, especially from high-tax states, will want concessions in exchange for their votes, speakers said.
The GOP in 2017 controlled the presidency and both chambers, Moore noted. “The irony is, a big, huge chunk of what took place in this bill in 2017 could be considered very bipartisan,” he said, adding that several provisions benefit middle- and lower-income Americans more than the wealthy.
Republicans expect zero support from Democrats again, “even though there might be many provisions that they actually do agree with,” Moore said. “So, that’s the situation that we’re in right now.”
“The stakes are huge,” Traub said. “Obviously, trillions of dollars at stake here in higher taxes for families across the board. Lots of moving pieces. It’s going to be a fascinating couple of months, or maybe more than a couple of months.”
Unlike in 2017, businesses are playing defense, he said. A lot of things are at risk but “not a lot of goodies out there for American businesses,” he said. “The range of outcomes generally doesn’t trend great, honestly, compared to what we saw in 2017.”