December 4, 2017 / 4:34 PM / a year ago

Breakingviews - Rushed U.S. tax bill rewards oil, real estate

Then Senate Minority Leader Mitch McConnell (R-KY) speaks to reporters in the Capitol in Washington January 29, 2013. REUTERS/Kevin Lamarque

WASHINGTON (Reuters Breakingviews) - A rushed U.S. tax bill showers goodies on parts of corporate America. The Republican Senate plan snuck in tax breaks for oil and gas partnerships, real-estate investment trusts and other sectors. One hiccup, though, puts the research and development tax credit favored by business at risk.

The plan passed early Saturday expands the kind of income eligible for reduced tax rates for pass-through entities, like partnerships and limited-liability companies. Oil and gas partnerships would be eligible under the bill, in addition to mortgage investments by real-estate investment trusts.

Instead of paying a top income-tax rate of nearly 40 percent, they would face an effective rate of about 30 percent because of a 23 percent deduction allowed for pass-through income. Overall, wealthy individuals like President Donald Trump would benefit the most from the provision because they often structure their businesses as pass-through entities.

Banks also stand to gain from a last-minute exception to a provision aimed at prohibiting tax-base erosion through overseas activities. After initially being included as qualifying activities, derivative payments are now excluded from such tax-bill calculations.

That’s in addition to a cut in the overall corporate-tax rate to 20 percent from 35 percent. Yet reductions for individual income would be temporary and taxes for people making up to $75,000 a year would go up by 2027, according to the Congressional Budget Office.

One hurdle in reconciling the Senate bill with a House version passed last month is the alternative minimum tax for corporations. The House repeals the levy while the Senate keeps it to raise an additional $40 billion in revenue over 10 years. The cut in the headline corporate rate could incentivize companies to take advantage of the AMT, but that could cause them to lose certain breaks like the research and development tax credit. Companies will claim about $10 billion in such credits this year, according to the Joint Committee on Taxation.

But Republicans smell victory in the air and there’s a good chance the party will work out the differences in time to have both chambers approve a final bill before Christmas. That means Santa Claus may come early this year for companies and the wealthy.


Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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