Republican senator concerned with passthrough provision in tax reform bills

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WASHINGTON  (Gray DC) -- There's a debate on Capitol Hill over two Republican bills, each with different ideas on how to overhaul the American tax code.

Senator Ron Johnson (R-Wisconsin) is worried both bills could cause some business to take a step backward.

He said, "Well, it really concerns me."

Johnson's concern is that his party's tax reform plan could end up hurting some large, non-corporate businesses.

"I'm not going to draw any red lines, but I'm actively talking to Senate leadership on what we can do to correct the problem," he said.

Johnson doesn't like how the GOP plans in the House and Senate handle passthrough businesses so differently than large corporations.

It's something the White House knew would be a challenge, since tax reform talks started.

Mick Mulvaney, the Director of the Office of Management and Budget, said, "The House has wrestled with it. The Senate is still wrestling with it. I think that's the hardest sort of wrinkle to iron out."

According to the liberal Brookings Institute, 95 percent of American businesses are classified as passthroughs - where the owner pays the tax, rather than the company.

Brookings data also shows 90 percent of those passthrough businesses are already paying rates at 25 percent or lower, because they're not bringing in enough money to hit a higher tax bracket.

However, Johnson says both Republican bills could put larger passthroughs, like manufacturers, at a disadvantage, because they will pay more than a 20 percent tax rate, which is what is being proposed for corporations.

Johnson said, "We need to make sure every business in America can remain competitive."

While Johnson says the passthrough tax plan doesn't help large non-corporate businesses enough. Some say the plan opens a new loophole for the rich to claim personal income as business income, in order to get a lower tax rate.

Alexandra Thornton, with the liberal Center for American Progress, said, "A lot of wealthy people could set up passthrough businesses in order to take advantage of this. But it's really almost impossible to put guardrails on this type of recharacterization of income."

Rep. Sean Duffy (R-Wisconsin), said, "It could be a huge loophole that people could drive a truck through and say they're a passthrough when really they're not."

Both the House and Senate plans have some added protection against the loophole, but experts argue it's making what was supposed to be a simplified tax code, a little more complex.

The Republican margin for error is razor-thin in the Senate, since they are trying to pass tax reform with a simple majority.

Johnson still has not said whether he is a yes or no on the Senate and House tax plans.



 
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