I spoke to Laura Davison from Bloomberg BNA about the relative merits of the Senate’s approach to pass-through taxation:
“It is certainly a much cleaner approach than the House. If the goal is simplification, that’s a simple way to do it,” said Liam Donovan, a principal at Bracewell LLP.
The 17.4 percent deduction number is “oddly specific,” indicating that the Senate tax writers needed to contain the cost of this provision, he said. The Joint Committee on Taxation estimates the deduction would add about $459.7 billion.
The Senate plan avoids one of the more complicated aspects of the House approach: determining what income should be taxed as wages, and what should be taxed at a preferential passthrough rate. It also isn’t clear whether passive owners—such as investors who don’t work in the business—would get a tax break close to what they would get in the House bill, which would give them a 25 percent rate on all the income they earn from the passthrough.
“It comes down to a choice—do you want a real 32 percent rate, or an inscrutably complex 25 percent rate that only applies to some of your income?” Donovan said.
Read the full piece here.