Controversy has grown over a last-minute addition to Republicans’ tax bill that gives real estate owners like President Donald Trump — and perhaps Sen. Bob Corker (R-TN), who suddenly came around to supporting the bill on Friday — a major tax break.
The provision essentially extends a new tax break for “pass-through” businesses, like partnerships and LLCs, to real estate investors — personally benefiting some lawmakers and exacerbating the already favorable rates for the wealthy in the bill.
Several news reports raised questions about Corker’s sudden support for the tax bill over the weekend, pointing out that the Tennessee Republican owns a lot of commercial real estate and would likely benefit personally from the tax break. Majority Whip Sen. John Cornyn only heightened the skepticism after saying the provision was added in an effort to “cobble together the votes we needed to get this bill passed.”
But while the provision quickly became dubbed the “Corker kickback,” Corker has vehemently denied it was what won him over, saying he didn’t read the whole bill before offering his support and that he didn’t know about the provision’s existence. Sen. Orrin Hatch (R-UT), the chair of the tax-writing Finance Committee, also insists Corker had no role in the provision’s crafting.
Hatch wrote a letter to Corker on Monday reasserting that the alleged connection between the added provision and Corker’s support was “categorically false”:
It takes a great deal of imagination — and likely no small amount of partisanship — to argue that a provision that has been public for over a month, debated on the floor of the House of Representatives, included in a House-passed bill, and identified by JCT as an issue requiring a compromise between conferees is somehow a covert and last-minute addition to the conference report.
The provision’s intention is not entirely new: Republicans, as Hatch said, have made pass-through businesses a priority in every iteration of their tax bills. But the provision in the final draft of the tax bill, which Republicans say reconciles the differences between the House and Senate tax proposals, is a completely new way to address the entities.
The final proposal is yet another articulation of how the Republican tax bill primarily benefits America’s highest earners. The provision would amount to a multimillion-dollar windfall for wealthy real estate developers — like Trump and his son-in-law Jared Kushner.
What does this provision actually do?
From the beginning, Republicans have made it a priority to give pass-through businesses a tax cut.
Currently, owners of pass-through companies, like LLCs, partnerships, sole proprietorships, and S corporations — the Trump Organization, for example — are taxed as personal income, at the top individual tax rate of 39.6 percent.
The House and Senate approached pass-throughs wildly differently. The House bill gave pass-through businesses a reduced rate at 25 percent, while the Senate bill allowed them to deduct 23 percent from their taxes, in addition to lowering the top tax rate from 39.5 percent to 38.5 percent. The final tax bill reconciled between the House and Senate lowers the top rate to 37 percent and offers pass-through businesses a 20 percent tax deduction.
But there is a major point of contention in this effort.
Republicans are billing this tax break as being a benefit for small businesses, which often organize as pass-throughs instead of as corporations, which are taxed at a different rate. But the push has long received criticism as a major loophole for the wealthy, who can establish themselves as a pass-through business to pay the lower rate for their personal investments.
The Senate attempted to address these criticisms by putting up certain guardrails to prevent wealthy individuals who don’t pay wages, or create jobs, from benefiting from the lowered tax rate. It limited how much business income was eligible for the tax break to 50 percent of the wages paid by the business. In other words, it attempted to reward pass-throughs that created jobs.
But that effort was ultimately weakened in the conference report. The new provision that has caught everyone’s eye as a handout to people like Trump essentially reintroduces a tax break for wealthy investors who aren’t creating jobs — a kickback that would primarily benefit real estate investors.
This tax bill personally benefits Donald Trump
Trump and his administration keep insisting that he would not benefit from this tax bill.
“This is going to cost me a fortune, this thing,” Trump said at a rally in Missouri early on in the tax effort. “Believe me.”
The president has repeatedly said the “rich will not be gaining at all” with the tax bill — which Treasury Secretary Steve Mnuchin repeated over the weekend.
That’s not true. In fact, Trump will personally gain from this tax bill.
The Trump Organization is a pass-through; it is a large holding company for all of the golf courses and hotels that Trump owns, and it pulls in about $9.5 billion in annual revenue. But because it is exempt from the corporate income tax, and its profits are instead taxed upon distribution to shareholders, this new tax break for pass-throughs is a huge win for the Trump family — and the many other businesspeople who structure their companies like this.
As Dylan Matthews explained, there are some provisions in the proposal meant to prevent rich individuals from using this tax break as a way to shelter income, but they only limit the benefit in many cases.
“The overwhelmingly rich owners of these companies will still come out way ahead,” he writes.