Trick or Treat? 5 Tax Proposals Scaring Business

By Yuval Rosenberg and Michael Rainey Wednesday is the big day. The text of the House tax bill that’s been written behind closed doors is finally set to be released, the next step in what Republicans hope against hope will be a swift and relatively smooth path to passage. But even they acknowledge that it won’t be easy. “Make no bones about it, the defenders of our ghastly tax code are coming,” House Speaker Paul Ryan’s press office wrote Tuesday in a Halloween-themed [post](. “The special interest ghouls will do anything to protect all their little tricks and treats.” Still, President Trump said Tuesday that he wants the House to pass the tax bill by Thanksgiving and would like to have the final bill on his desk by Christmas. “It’ll be a big event. It will be the biggest tax event in the history of our country,” Trump [proclaimed](. Historians may [beg to differ](. Trick or Treat? 5 Tax Proposals Scaring Business The U.S. business community is getting a bit of a scare this week, and not just because it’s Halloween. As House Republicans rush to finalize a draft of their 1,000-page-plus tax bill, expected to arrive Wednesday, [lobbyists are scrambling]( to find out what exactly is in the bill — and to see how they can influence the fine details that can translate into huge gains or losses for the industries they represent. But the last-minute decisions about what to include will likely involve some of the most difficult tradeoffs the tax writers will have to make as they search for new sources of revenue. While some of the potential changes that would affect both businesses and individuals have gained broad attention — including [new rules for 401(k)s]( and the [fate of the state and local deduction]( — others that would have a significant impact on specific business sectors have remained largely under the radar. Here are five of the corporate tax changes the House is considering right now that have some businesses worried, according to [Bloomberg]( — but be forewarned, many of these will take you deep in the darkest bowels of the tax code! - A phased-in cut of the corporate tax rate. [Gradually lowering]( the corporate tax rate over five years instead of doing it in one fell swoop would affect all kinds of businesses, and as Monday’s stock market drop indicated, it’s providing corporate American with quite a fright. The White House [pushed back]( on the idea, but reports indicate that Republicans are considering it nevertheless. Lobbyists will have to make it through the dark night, however, to see how this one turns out. - No more LIFO accounting. Companies currently can use a “last in, first out” accounting system to value their inventory, but the new tax plan may eliminate that option. This would force some companies in the oil, retail and auto sectors to pay up on deferred tax liabilities they accrued through the use of LIFO accounting, raising an estimated $79 billion over 10 years. - Reduced deductibility of advertising expenses. Businesses can write off the full cost of advertising immediately under the current rules, but that may change to a gradual deduction over 10 years. A 2014 version of this proposed rule change estimated that it would raise $169 billion over a decade. - Reduced deduction for research and experimentation. Manufacturers benefit from the current system, which allows for the immediate deduction of research and experimentation costs. A new rule creating a five-year deduction schedule would raise an estimated $192 billion over 10 years. - Eliminating the deduction for domestic production. The GOP tax framework stated that since corporate tax rates would be reduced across the board, the special deduction for domestic production, which applied to much as 9 percent of a company’s taxable income, should be eliminated. Nixing the tax break is estimated to raise $115 billion over 10 years. [Share]( [Tweet]( [Forward]( Tweet of the Day Fiscal Flashes Kevin Brady, The Man Behind the Plan: Ahead of Wednesday’s release, The Wall Street Journal has a profile of the 62-year-old chairman of the House’s tax-writing committee, who apparently likes to sit on a duct-taped leather armchair in the living room of the Washington townhouse he shares with three other Republicans, “with a baseball game on in the background, papers in his hands, and eating a low-budget meal” that may involve “cheese packets you get at the airport” or hot dogs. Siobhan Hughes and Richard Rubin [write]( “Opposition from Democrats, competing interests within the Republican Party itself, intense pressure from K Street lobbyists and a compressed calendar ensure that the amiable Ways and Means chief is about to be put to the test.” State and Local Income Tax Deduction Still on the Chopping Block: Brady confirmed Tuesday in an interview with radio host Hugh Hewitt that Republicans still plan to do away with the deduction for state and local income taxes. Brady [said]( the bill will maintain some kind of deduction for property taxes in order to appease GOP representatives from high-tax states, some of whom have said they would not support legislation that eliminates state and local tax deductions. There’s no clear indication yet on how this announcement is playing among blue-state Republicans, whose support could prove crucial to passing the bill, but Michael Barone at the American Enterprise Institute is [interpreting]( the move, which falls short of the full elimination of state and local tax deductions that many conservatives wanted, in a positive light: “Sometimes in legislation you get closer to a goal by taking a step away.” Send Us Your Feedback: Drop us a line with your thoughts on the tax plan or your favorite Halloween candy. (We're big fans of peanut butter cups.) Email Yuval Rosenberg at yrosenberg@thefiscaltimes.com and follow me on Twitter [@yuvalrosenberg](. Follow The Fiscal Times on Twitter [@TheFiscalTimes](. GOP Might Live with the 'Death Tax' After All As they search under the couch cushions for money to make their tax bill less costly — and ways to make it more politically appealing — Senate Republicans are considering what, for many of them, might have seemed [unthinkable]( reneging on their promise to abolish the estate tax. “I don’t think there’s the stomach to do a full repeal,” Senate Finance Chairman Orrin Hatch said. And Sen. Susan Collins, a key vote on any tax bill, [told Bloomberg News]( that she doesn’t think there’s any need to eliminate the tax. (She also said she doesn’t believe the top marginal rate should be lowered for individuals making more than $1 million a year.) Instead, [Roll Call reports]( some GOP senators are considering doubling the exemption, currently $5.49 million for individuals or just under $11 million for couples (going up to $5.6 million and $11.2 million, respectively, in 2018). Doubling the limits would represent a major shift for Republicans on an oft-repeated promise, and it could disappoint some deep-pocketed donors and voters who think the tax is [unfair](. But such a move could also help blunt some criticism that the tax overhaul will be a windfall for the wealthy — though the increased limits would still represent a win for a tiny and very rich sliver of the population. It would also preserve a [decent chunk]( of the [$269 billion]( in revenue over 10 years that a full repeal would cost. 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