Cutting the corporate tax rate

Reducing the corporate tax rate to 20 percent, from 35 percent, is at the center of both the House and the Senate tax plans. How soon they get there is the only difference. The House bill immediately cuts the corporate tax rate, fulfilling the wishes of President Trump.

The Senate imposes a one-year delay on lowering the rate, a move that allows Senate Republicans to preserve other deductions that the House eliminates. Economists have debated the effect that the delay will have on economic growth.

Now, the Senate is discussing whether to raise the rate above that 20 percent figure to help pay for other provisions or, possibly, to help defray the budget costs of the bill. Increasing the corporate tax rate would be a troublesome development for many Republicans and Mr. Trump, who have drawn a red line on a 20 percent corporate rate.

Small-business treatment

Republicans are united in their desire to give small businesses a tax break, but their plans differ in how to provide a tax cut. House lawmakers created a new 25 percent tax for so-called pass-through businesses — sole proprietorships, partnerships and S corporations that currently pay taxes at the individual rate of their owners. However, they erected guardrails to prevent the new rate from becoming a loophole that wealthy individuals can exploit by converting themselves into entities to take advantage of the 25 percent rate.

The Senate takes a different approach, creating a new deduction for pass-through businesses along with other incentives to promote investment. To satisfy the concerns of certain senators, including Ron Johnson of Wisconsin and Steve Daines of Montana, the deduction is expected to be increased to 23 percent from the current 17.4 percent in the bill.

Making the tax code more ‘America First’

A main priority of the Republican tax effort has been making the United States’ tax system more competitive so that companies invest here and so that they do not have an incentive to shift profits to lower-tax jurisdictions. The Senate plan will impose taxes on American and foreign companies that shift offshore money earned in the United States. There would be an effective minimum tax on money earned domestically and a 12.5 percent tax on foreign revenue from intellectual property.

The original House approach would have levied a 20 percent “excise tax” on payments between American and foreign companies that are affiliated with each other. This idea set off substantial confusion and opposition from drug and insurance lobbyists and was tweaked during the Ways and Means Committee’s amendment process.