Poor corporations. The moral is, let everyone see the drafts and hold hearings! See what happens when you rush?
This screwup — like most of the tax plan’s oddest features — was born of a math problem. Due to arcane Senate rules, the Trump tax cuts can only add $1.5 trillion to the deficit over the next decade. Last Thursday, the Senate tax bill already cost about that sum, and then McConnell started making expensive promises to his few holdouts. Susan Collins wanted a $10,000 property tax deduction for Americans in high-tax states; Ron Johnson wanted a 23 percent business-income deduction for the company that his family owns. This left the Senate Majority Leader searching under the tax code’s couch cushions for new sources of revenue.
Eventually, he came upon the corporate alternative minimum tax (AMT). At present, most corporations face a 35 percent (statutory) rate on their income. But by availing themselves of various tax credits and deductions, most companies can get their actual rates down far below that figure. To put a limit on just how far, the corporate AMT prevents companies from paying any less than 20 percent on their profits (or, more precisely, on the profits that they fail to hide overseas).
The GOP had originally intended to abolish the AMT. But on Friday, with the clock running out — and money running short — Senate Republicans put the AMT back into their bill. Unfortunately for McConnell, they forgot to lower the AMT after doing so.
This is a big problem. The Senate bill brings the normal corporate rate down to 20 percent — while leaving the alternative minimum rate at … 20 percent. The legislation would still allow corporations to claim a wide variety of tax credits and deductions — it just renders all them completely worthless. Companies can either take no deductions, and pay a 20 percent rate — or take lots of deductions … and pay a 20 percent rate.
With this blunder, Senate Republicans have achieved the unthinkable: They’ve written a giant corporate tax cut that many of their corporate donors do not like.