Two Smart Changes Have Made the GOP Tax Bill Passable

Peter  Roff
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Posted: Nov 14, 2017 10:35 AM
Two Smart Changes Have Made the GOP Tax Bill Passable

Last week, Texas Republican Kevin Brady, using the power available to him as chairman of the House Committee on Ways and Means, introduced another of what's known as a "manager's amendment" to the tax reform bill. The changes that amendment made to the bill, which passed with ease, were both important and effective, making him perhaps the most influential House member since Jack Kemp on the subject of taxes.

It is clear Chairman Brady had it in mind to mitigate controversy in order to produce the strongest, most passable conservative reform framework possible. Thanks to his efforts last week, it seems that the bill should now muster enough GOP support to cross the finish line in both the House and Senate.

Criticisms of the House reform efforts have focused mainly on the bill's alleged marginalization of American families and small businesses. Brady took most of their negative talking points away in one fell swoop with two simple changes.

First and foremost, he resurrected the adoption tax credit. Politically, this had to be done after everyone from Sen. Ben Sasse (R-Neb.), and a multitude of influential social conservative organizations, to left-leaning media outlets like Vox and the Huffington Post expressed outrage over its repeal. Adding new financial barriers to parenting made the GOP look cold and unfeeling and could even be said to have laid the groundwork for an increase in the commonality of abortion, however inadvertently. Brady, who is the father of two adopted children, quickly picked up on this point and swiftly added it back into the bill with reasonable conditions.

Next, Brady responded to Republican criticism of how the plan did not help enough small businesses by further slashing the top rate for active owners in "pass-through" companies -- firms where business owners pay taxes through the income tax rather than the corporate tax -- to nine-percent on their first $75,000 of taxable income. By ensuring that this new, special rate would only apply to those who make less than $150,000 from these firms, all while putting more higher income earners in the House's 14-percent lower top rate, he ensured that detractors would have less reason to label this bill a giveaway to the rich.

By taking the initiative to fix what the Wall Street Journal considered to be two of the most significant fault lines, he undoubtedly pleased many critics. How, though, did he pay for these changes? Thankfully, not with the expected new revenue raisers that would open new political can-of-worms.

To many analysts' surprise, Brady did not create a new form of double taxation by hiking the treatment of carried interest. Instead, he just increased the number of years investments must be held to qualify for the 23.8 percent rate to prevent financial engineering. His intelligent compromise was smart politics, as it seems to have appeased the White House and even Breitbart executive chairman Steve Bannon, both of which wanted to initially see taxes raised on this crucial stimulant to investment and risk-taking in the American economy.

He also did not resurrect Rep. Dave Camp's old, disastrous advertising tax idea, which the Washington Post not long ago included on its short list for potential new revenue raisers. This plan would have removed advertising spending's full deductibility and only made it half deductible for the first few years.

While the concept of temporarily holding ad spending may seem harmless on its face, it would have undoubtedly increased consumer prices by reducing co-op advertising agreements -- plans where manufacturers agree to finance 30-50 percent of businesses' ad spending -- which would have hurt American families and those on fixed incomes. For this reason and more, a bipartisan coalition of 15 senators, including Sens. James Inhofe (R-Okla.), John Boozman (R-Ark) and Rand Paul (R-Ky.), signed an October 30th letter to leadership stating their opposition to such a tax. Their Dear Colleague letter followed one from May which 124 members of the House endorsed.

Instead of enacting one of these dangerous tax increases, Brady listened to his colleagues and made smart, conservative decisions to fill the new revenue gaps. Rather than alter the expensing of something that would have amounted to a hidden consumer tax, the Ways and Means chair instead amortized business research expenses over a five-year period -- a far more sustainable alternative for the middle class. He also closed the moving expense deduction for everyone but military families. When considering how much extra money the new personal and corporate tax rates will put in everyone's pockets, these minor changes should not have a marketable economic impact.

With tens of thousands of lobbyists screaming at congressional doors, it takes a special kind of person to parse through every concern and determine what is in the best interest of the country as a whole. In recent weeks, Kevin Brady has proven to be of this unique mold -- going through the arduous development process multiple times in order to reach near-perfection. Thanks to his efforts, not only will the House bill likely pass this week, but Sen. Orrin Hatch (R-Utah) and the rest of the Senate Finance Committee will also have an excellent blueprint to review before their first markup.