- House Republicans made changes to a proposed excise tax on multinational companies in the Tax Cuts and Jobs Act with an amendment on Monday.
- The Join Committee of Taxation found that by weakening the proposed tax, the TCJA would add more than $US1.5 trillion to the federal deficit over 10 years.
- That would mean the bill would no longer qualify under the budget reconciliation rules.
In an attempt to solve one of their biggest issues with their tax bill, the House Republican leadership may created an even bigger headache.
According to an update from the Joint Committee on Taxation, an amendment to the Tax Cuts and Jobs Act (TCJA) that was added late Monday would make the bill fail a key test and force Republicans to come up with an alternative solution to raise revenue.
The new complication stems from a proposed 20% excise tax on payments from US entities to foreign subsidiaries. The tax proposal would have made the sale of a good into the US by a foreign subsidiary of the multinational company subject to the tax.
For example: If Toyota sold a part from its Japan headquarters to its US subsidiary for assembly in the US, it would have had to pay the 20% tax, something it does not currently have to do.
After an uproar from multinational corporations, Ways and Means Committee Chair Kevin Brady — the author of the TCJA — offered an amendment late Monday to soften the excise tax. That amendment was passed.
The Joint Committee on Taxation, however, determined that the softening of the proposed tax would lead to the provision collecting less revenue, complicating the budget maths for Republicans.
The excise tax was projected to bring in $US154.5 billion in revenue over the next 10 years. The softened provision would only generate $US6.5 billion over the same time period, the JCT said.
That would push the total deficit impact for the TCJA to $US1.57 trillion over the next 10 years.
Rules in the Republican-passed budget only allow for the tax bill to add $US1.5 trillion over 10 years to be considered under the process known as budget reconciliation. Reconciliation allows a bill to be passed in the Senate with only 50 votes and without being subject to a filibuster, meaning Republicans can pass the bill without Democratic support.
Brady and the other Republican tax writers will need to find a way to get the bill back under that threshold to push the TCJA forward.
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