Republicans on Capitol Hill affirmed on Wednesday reaching an agreement reconciling the Senate and House versions of the tax bill.
This accomplishment perhaps eclipses the actual passage in both houses of the bill(s?), which reads as two distinct pieces of legislation despite House Speaker Paul Ryan, in a discussion with Fox News, calling the two chambers’ bills “very similar” and not “difficult to reconcile the differences.”
USA Today reported “hundreds” of differences between the versions passed in the two houses, which feature alternative numbers of personal rates (seven for the Senate and three for the House) and disagreement on whether to repeal the individual mandate (Senate) or not (House). The printed summary of the differences runs 51 pages. The CliffsNotes version totaling a page for every senator who voted for the legislation only begins to indicate how War and Peace long and complicated the tax code strikes Americans without accounting degrees or fluency in Bureaucratese.
The tax code for individuals, with numerous rates and deductions, vexes Americans and heartens accountants every April. The tax code for businesses appears even more byzantine.
Whether a business organizes as a limited liability company or a C-Corporation, whether the venture holds money here or abroad, and whether it qualifies for various credits, deductions, and loopholes all influence the amount it owes Uncle Sam. What it generates in revenue often ranks as a secondary barometer of what it pays in taxes.
C-Corporations enjoy a lower tax rate but get hit a second time with capital gains taxes. Pass throughs generally face higher rates but escape double taxation. Corporations savvy enough to take advantage of the code by hoarding money abroad save hundreds of billions with the sheltered money reaching an estimated $2.5 trillion.
Businesses generating the same revenues pay wildly different amounts at tax time. This bill, salutatory in so many regards, does not change this ugly fact.
Making the tax code simpler makes it fairer. Without so many alleys and holes and hiding places, the tax code works in unfair ways that benefit the savvy rather than the deserving.
By abolishing double taxation for C-Corporations and taxing pass throughs at the lower corporate rate, the code would provide fairness. This requires treating all businesses equally under law and abolishing the constructs created in the latter half of the 20th century to classify one business as a pass through and another as a C-Corporation. Tax them all at the same low rate.
For American companies establishing shelters overseas, a reformed tax code could ensure that they pay the 21 percent rate this legislation calls for no matter the rate established in the tax haven. So, Microsoft, which keeps about 95 percent of its cash abroad, would have to pay the U.S. rate no matter where it stored its money. In effect, this proposal would tax Microsoft at four percent for its money in Singapore, already taxed at the local 17 percent rate, to total the 21 percent rate paid by American companies. Apart from lowering the corporate rate from 35 to 21 percent, imposing a make-up-the-difference tax would discourage American companies from hiding money abroad and allow any company that wishes to keep its cash elsewhere for legitimate reasons to keep its cash elsewhere without additional penalty.
The president promises “a giant tax cut for Christmas.”
“I’m excited to announce if Congress sends me a bill before Christmas,” Trump explained on Wednesday, “the IRS — this is just out, this is breaking news — has just confirmed that Americans will see lower taxes beginning in February, just two short months from now.”
This early Christmas present, given and received without much surprise, certainly makes for a happy new year. Beyond this new year, more Christmases — with perhaps better gifts — follow.
Hunt Lawrence is a New York-based investor. Daniel Flynn is the author of five books.