The vaunted Senate tax-cutting bill appeared to be sailing through on Thursday until a small number of GOP senators raised concerns over $1 trillion in added debt over the next decade.
The Senate will come back on Friday with a new plan that will scale back the costs of the bill over the next decade.
Republicans, who hold a slim majority, on Thursday repeatedly won party-line votes rejecting Democratic attempts to send the tax bill back to the Senate Finance Committee. Democrats argue the tax bill heavily favors the rich and will eventually lead to cuts to programs for the poor and middle class. Republicans countered that the $1.414 trillion in tax cuts will provide a major injection of economic boost.
Late afternoon during debate, the Senate voted 52-48 to defeat the latest Democratic attempt to send the bill back to committee. The vote came, however, after several minutes of talks with Sen. Bob Corker, R-Tenn., holding court in the well of the of Senate floor. It was clear afterward that changes would be needed to satisfy senators worried about the deficit.
The sticking point was a Joint Committee on Taxation report released Thursday stating the tax bill would boost the economy, but not as much as Republican lawmakers claim. The $1.414 trillion tax cuts would stimulate enough economic active to generate $407 billion in net federal revenue over the decade. That would still translate into $1 trillion in additional federal deficits over that time.
President Donald Trump, speaking Wednesday in Missouri, made it clear the tax bill was a moment of truth for the Republican Party to deliver on his campaign promise to lower taxes and create more jobs. The American people, Trump said, are going to get “a big, beautiful Christmas present.”
For businesses, the centerpiece of the Senate bill is cutting the corporate tax rates from 35% to 20%, though the Senate bill would not begin the corporate-rate cut until 2019. The tax bill also is expected to provide lower rates for global companies to repatriate an estimated $2.5 trillion to $3.1 trillion in earnings from foreign income.
The Senate bill would allow 100% expensing for business equipment or machinery put in place before Jan. 1, 2023. The bill also expands the small-business Section 179 immediate business expensing to $1 million in property and increases the phase out to $2.5 million. The proposal also expands the type of property that can be used for a Section 179. Senate bill also shortens depreciation for certain farm machinery and equipment from a 7-year schedule to a 5-year schedule.
Farmers could benefit from a provision in the Senate bill allowing a deduction of certain pass-through income that was initially proposed at 17.4% but several major media outlets reported going to a 20% deduction. This includes income from a partnership, an S corporation or a sole proprietorship. Yet the provision would limit the deduction to 50% of W-2 wages of the taxpayer’s business.
The Senate follows the House and repeals the Section 199 Domestic Production Activities Deduction. The National Council of Farmer Cooperatives has warned this 9% deduction is worth about $2 billion in deductions to cooperatives that are directly passed on to co-op members. But the chambers now have agreed to eliminate the deduction.
Senate plan also retains cash accounting to farmers with annual average gross receipts that do not exceed $25 million over a three-year average.
The Senate bill also increases the estate-tax exemption from $5.49 million to $11 million for an individual or $22 million for a couple, which is also indexed for inflation. The Senate would keep a special valuation clause for real-estate on smaller farms.
The House bill doubles the estate-tax exemption to $11 million then phases out the estate tax by 2023.
The Senate bill also doubles the standard deduction for individual families and would double the Child Tax Credit to $2,000 a child. The bill would also repeal the individual insurance tax penalty, which would be a major victory for Republicans in the battle over the Affordable Care Act.
Sen. Pat Roberts, R-Kansas, said on the Senate floor that the tax bill would drive stronger growth, leading to higher incomes and higher spending, and less dependence on government. Roberts also pointed to several provisions he said would protect agriculture, especially depreciation and accounting provisions that were added or retained in the tax bill.
“I am very pleased the bill reflects the importance of production agriculture to our economy,” Roberts said.
Roberts said the bill would liberalize depreciation rules for farmers and ranchers. The tax bill does not eliminate the estate tax, but for “land-owning, cash-constrained farmers,” the tax bill would “reduce its damaging reach.” The tax changes, Roberts said would, “help our farmers by creating a much more pro-growth tax system.”
Countering Roberts was Sen. Debbie Stabenow, who cited statements from Republicans that the middle class would receive $4,000 or more in average income. So Stabenow pushed an amendment late Thursday afternoon that would return the average corporate tax rate back to 35% if the average person did not see at least a $4,000 boost in their paychecks.
Democrats complained the tax cuts for individuals are set to expire in 2025 under the bill, which was done as a way to keep the costs under $1.5 trillion.
Tom Udall, D-New Mexico, said tax cuts would force billions in spending cuts to programs in health care, education and other federal programs. Udall said that would hurt the poor and working class in his state. Udall pointed to mandated cuts that will come from congressional pay-as-you-go rules.
Pay-go rules set by Congress call for sequestration cuts of $136 billion for Fiscal Year 2018 based on the revenue cuts made in the tax bill. According to the CBO, for instance, USDA would face $20.26 billion in budget cuts next year, of which $13.7 billion would come from the Commodity Credit Corp. fund. The National Farmers Union, in a letter to Congress on Wednesday, expressed concern about those cuts. “That sequestration would eliminate important sectors of the farm safety net, including the Agricultural Risk Coverage and Price Loss Coverage programs,” NFU wrote. “Such a scenario would be devastating to family farmers.”
Republicans also argued there would be more economic growth following the tax cuts that would generate more revenue. They made the argument that Congressional Budget Office estimates of growth over the next decade of 1.9% annually was wrong.
Sen. John Thune, R-S.D., on the Senate floor, criticized assumptions of average annual economic growth of 1.9% for the next decade. Thune said the tax cuts pay for themselves if the average growth averages 2.4% or higher.
“I can’t believe we wouldn’t have more confidence in the American economy to generate more than 1.9% growth,” Thune said. He added, “We think we can do a lot better.”
The tax bill was designed to deliver meaningful relief, but put policies in place to raise the economic growth, Thune said.
Sen. Rob Portman, R-Ohio, said 1.9% economic growth projected growth is not normal, and used a sign on the Senate floor to make that case. At 2.1% growth. Portman said more money would go into the U.S. Treasury.
“So I think this (tax cut) is very fiscally responsible. I think it’s very conservative,” Portman said. “I think we will do better than the numbers you’ve seen here.”
Portman still said the Congress still needs to deal with “out of control spending” in some major social programs.
Source: Chris Clayton, DTN
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