The Senate passed a historic tax-reform bill in the wee hours of the night on Friday. The tax overhaul slashes the corporate tax rate to 20% from 35%, reduces the rate on pass-through businesses, and simplifies and reduces rates for individuals.
That’s the good, there is bad and ugly in the bill as well.
To meet arcane Senate and budgetary rules, there were many sacrifices made starting with the expiration of a simplified individual income tax code in 2026. Lawmakers are saying publicly that they expect a future Congress to maintain the reformed tax-code, but with a bill that was passed along party lines with only 51 votes, there are no guarantees a future Congress won’t let the cuts expire.
One of the other ugly provisions in the Senate bill is the AMT. Only hours before the bill was passed, the Senate added a revised AMT back into the bill. Republicans have railed against the AMT for decades. The provision was originally put in place to prevent a few hundred taxpayers from paying no income tax at all, but the AMT now impacts millions of Americans. It is effectively a second tax code that requires many Americans to calculate their taxes twice.
If you were looking to reform the tax-code, the AMT would be the place to start. Republicans can’t claim with a straight face that this is tax reform without dumping it. Fortunately, the Senate doesn’t have the final say on the bill. The House and Senate will go to conference to work out differences in their respective bills. The House bill eliminates the AMT. Conference members should seek to dump the AMT in the reconciled bill even if that means a slightly higher corporate rate or less generous deductions.
We’ll have more on the good, bad, and ugly in the tax bill in coming days. Stay tuned.
Jeremy Jones, CFA
Latest posts by Jeremy Jones, CFA (see all)
- Do the Best Managed Companies Make the Best Investments? - December 8, 2017
- What Tax Reform Means for You: Part II - December 7, 2017
- Nestlé Expands its Nutrition Portfolio - December 6, 2017