NADA Legislative Affairs has been meeting extensively with the House Ways and Means Committee to advocate for dealer issues in the tax reform bill, and many of those issues are in the bill released last week. The bill is widely viewed as a boon to the business community, with the idea that helping business profitability will boost economic growth. The provisions important to dealers are listed below, with some caveats discussed afterward.
- Corporate rate: Permanently reduced from 35 percent to 20 percent.
- Expensing: 100 percent expensing through Jan. 1, 2023.
- Advertising deductibility: No change.• LIFO: No change.
- Alternative minimum tax: Repealed.
- Estate tax: Doubles the exemption for estates worth more than $5.49 million for individuals and $10.98 million for married couples to $11 million and $22 million, respectively. The tax is repealed after 2023.
- Standard deduction: Raises the standard deduction from $5,350 to $12,000 for individuals and from $12,000 to $24,000 for married couples.
- Individual tax rates: 12 percent up to $90,000; 25 percent up to $260,000; 35 percent up to $1 million; $39.6 percent above $1 million.
- Pass-throughs: The bill would reduce the top pass-through rate to 25 percent, with important limits. Business owners could choose between: (1) the “70/30 proposal” where 70 percent of income is considered wage income – which would be taxed at the individual tax rate – and 30 percent as business income, which would be taxable at the 25 percent rate; or (2) a formula based on the facts and circumstances of their business to determine a capital percentage of greater than 30 percent.
- Business interest deductibility: 100 percent for businesses with average gross receipts of $25 million or less. For other businesses, interest deductibility is disallowed for expenses more than 30 percent of the business’s taxable income. • Like-kind exchange: LKEs would be limited to real property.
- State and local taxes: Repeals the state and local tax deduction except for property taxes up to $10,000.
- Electric vehicle tax credit: Repeals the $7,500 EV tax credit beginning Jan. 1, 2018.
Caveat #1: The process is far from over, and final passage won’t be easy. Trying to repeal Obamacare may look like a walk in the park by comparison.
Caveat #2: Some powerful lobbying groups have expressed strong opposition. The National Federation of Independent Business said it cannot support the bill in its current form. Although the bill would reduce the top pass-through rate to 25 percent, NFIB is unhappy with the limits, which it says mean the rate would not apply to all small business owners. The National Association of Homebuilders and National Association of Realtors also planned to oppose the bill because of limits on the mortgage deduction.
Caveat #3: The plan would create a $1.5 trillion deficit over 10 years. This may not be a problem politically, but it is a very big problem fiscally.
With all that said, the Republicans will work as hard as they can to make tax reform their first major legislative achievement this year. The House leadership is anxious to pass a bill by Thanksgiving, and President Trump – who has pushed for tax reform for many months – has said he wants to sign it by Christmas.
To get there, the House Ways and Means committee plans to begin considering the bill on Monday, Nov. 6. The Senate Finance Committee plans to release its tax bill later this week. NADA has been in touch with the chairman of the House Ways and Means Committee and will continue to work with the tax-writing committees to address problem areas and provide alternatives.
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