Tax Reform Finalized
President Trump Says Christmas Present is Delivered and Tax Cuts Will Fuel US Economy
WASHINGTON (DTN) -- Congress finalized a sweeping $1.5 trillion tax-reform bill on Wednesday after the Senate voted early in the morning to approve it, but the House had to revote on the measure because Senate rules required the elimination of a few provisions from the bill.
The House revote Wednesday delayed, just slightly, a major legislative victory for President Donald Trump and Republicans who sought for decades to reform the Tax Code. The House approved the final bill on a 224-201 revote with 12 Republicans joining every Democrat in opposing the tax bill.
Republicans were heading to the White House mid-afternoon on Wednesday for a Rose Garden event championing the bill's final passage.
In a statement, the president noted he had achieved one of his major campaign promises with the largest tax cut in U.S. history. The president also said the tax bill will continue to add fuel to the U.S. economy.
"I promised the American people a big, beautiful tax cut for Christmas," the president stated. "With final passage of this legislation, that is exactly what they are getting. I would like to thank the members of Congress who supported this historic bill, which represents an extraordinary victory for American families, workers, and businesses. Unemployment continues to fall, the stock market is at a record high, and wages will soon be on the rise. By cutting taxes and reforming the broken system, we are now pouring rocket fuel into the engine of our economy. America is back to winning again, and we're growing like never before. There is a great spirit of optimism sweeping across our land. Americans can once again rest assured that our brightest days are still to come.
A major accounting firm noted that the bill would provide some benefits to farmers but pointed out that all the benefits -- including an estate tax reform -- will expire in about eight years.
The Senate vote late Tuesday into early Wednesday morning was 51 to 48, along party lines, with Sen. John McCain, R-Ariz., not voting because he is in Arizona recovering from chemotherapy.
The bill lowers the corporate tax rate from 35% to 21% and includes several provisions such as immediate business expensing and expanded Section 179 deductions -- all meant to stimulate business growth and higher incomes.
Farmers who receive income from pass through entities will see a 20% deduction. The effective impact of a 37% tax rate and a 20% deduction for pass-through income, would set a top tax rate on business income at 29.6%.
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The bill also ends the health-insurance mandate under the Affordable Care Act. To that, President Trump said briefly at a cabinet meeting on Wednesday, "Obamacare has been repealed."
After the bill passed, House Speaker Paul Ryan, R-Wis., said in a news release, "After years of work, we are going to enact the most sweeping, pro-growth overhaul of our tax code in a generation. Americans are going to see relief almost immediately in the form of bigger paychecks and lower taxes. I commend [Senate Majority] Leader [Mitch] McConnell [R-Ky.] and [Senate Finance Committee] Chairman [Orrin] Hatch [R-Utah] for working closely with the House to produce this historic legislation, and I look forward to joining them to send it to the president."
Sen. Dianne Feinstein, D-Calif., said in a news release, "Republicans just gave corporations and the richest Americans an early Christmas present at the expense of middle-class families.
"Just days before a potential government shutdown, Republicans have rushed through a tax cut bill written in secret that adds more than $1 trillion to the deficit in order to give the top 1 percent a big tax cut. That's unconscionable."
Feinstein said the bill would hurt Californians due to the limitation on the deductibility of state and local taxes and because it limits the deduction for losses suffered during a disaster, such as a wildfire, to only federally declared disasters.
The initial House vote on Tuesday was 227-203, with 12 Republicans joining every Democrat in voting against it. All but one of the Republicans voting against it were from New York, New Jersey, and California, including House Appropriations Committee Chairman Rodney Frelinghuysen of New Jersey. The only House Republican from outside the Northeast to vote against the bill was Rep. Walter Jones of North Carolina.
House Agriculture Committee Chairman Michael Conaway, R-Texas, praised the vote, saying, "Today, Congress has delivered the fairer, simpler tax code that American families and small businesses deserve. This historic tax relief package both simplifies our broken system and sets the economy on a course to stimulate growth and create jobs. As chairman of the House Agriculture Committee, I'm pleased that [House Ways and Means Committee] Chairman [Kevin] Brady [R-Texas] and his team have produced a bill that acknowledges the unique tax challenges faced by those in agriculture. From lower marginal rates to the treatment of pass-through income to improved small business expensing, this bill delivers for farmers, ranchers, and all rural America."
House Agriculture Appropriations Subcommittee Chairman Robert Aderholt, R-Alabama, said he voted for the bill "to give back more money to Alabama taxpayers."
"Far too many of the people in Washington believe that the government should have a right to a high percentage of everything you earn. Those people are wrong. It is your money, and you should be able to keep even more of it," Aderholt added.
K-Coe Isom, a major accounting firm, said in a news release Monday that farmers may need to restructure their operations in order to get maximum benefit from the new law, but noted that "rate reductions and estate tax changes beneficial to ag are temporary."
"The core of this bill is a 21 percent flat rate for C corporations," said Doug Claussen, a principal and a certified public accountant with K·Coe Isom. "Most farm businesses are not structured as C corps and won't benefit from this rate unless they restructure. For farms that are structured as C corps, those in the 15 percent tax bracket would actually see a tax increase from this flat rate. The majority of farmers, however, are sole proprietors or structured as pass-through entities. These farmers should see some benefits from the deduction for business and pass-through income, immediate expensing of capital purchases, and to some degree from reductions in individual rates."
The National Cattlemen's Beef Association and the American Farm Bureau Federation had campaigned strongly for the doubling of the exemption from the estate tax that is in the bill and had hoped Congress would eliminate the estate tax permanently. Farm Bureau and NCBA praised the bill but were muted in their enthusiasm for it, while the Democratic-leaning National Farmers Union urged a vote against it.
Craig Uden, president of the National Cattlemen's Beef Association, said this week, "The Tax Cuts and Jobs Act makes a number of changes to the current tax code that will benefit family ranchers and farmers, including the expansion of key provisions livestock producers rely on like cash accounting, bonus depreciation and Section 179.
"While it is disappointing that Congress ultimately passed up this once-in-a-generation chance to fully and permanently repeal the unfair and onerous death tax, the final bill does take a sizeable bite out of the death tax by doubling the exemption rates, and we are grateful for the lawmakers who fought so tirelessly on agriculture's behalf," Uden continued.
"Unfortunately, in order to keep the cost of the bill within Senate budget rules, all of the positive changes affecting individuals, including the higher death tax exemption rates, are set to expire after 2025. Of course, fourth-, fifth-, and sixth-generation cattle producers tend to think about things in the long-term, and in that tradition, we will continue to fight to reduce the tax burden on family ranchers in the months and years to come," he concluded.
National Farmers Union "staunchly opposed" the tax bill because of its structure and impact on the health-care law. NFU President Roger Johnson warned Wednesday that the $1.5 trillion cost should not end up jeopardizing farm programs in 2018.
"Farmers Union is deeply disappointed in Congress' decision to approve the Tax Cuts and Jobs Act, not only because it is flawed fiscal policy, but also because we must now fight to protect every penny that is spent securing our nation's food supply and natural resources, supporting our rural communities, and feeding our hungry," Johnson said.
He added, "This tax bill leaves a $1.5 trillion hole in the budget -- a hole that some members of Congress will want to fill with farm program and entitlement spending cuts. At a time when rural America is experiencing the most severe economic downturn in a couple generations, we cannot afford to take away their safety net. Moving forward, we urge Congress to avoid any funding cuts to programs that support our nation's family farmers and ranchers."
DTN Ag Policy Editor Chris Clayton contributed to this report.
Jerry Hagstrom can be reached at jhagstrom@njdc.com
Follow Jerry Hagstrom on Twitter @hagstromreport
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