The Senate tax plan encountered its first outright Republican opposition this week, from a senator whose concerns might foreshadow the biggest business challenge ahead for the proposal.
Senator Ron Johnson of Wisconsin called the plan -- which was approved by the Senate Finance Committee late Thursday -- “inadequate” because it would disadvantage many closely held businesses relative to major corporations, or so called C corps.
The plan would slash the corporate tax rate to 20 percent from 35 percent. But the rate for partnerships, sole proprietorships and other pass-through firms would be set by a formula -- with rates higher than 30 percent for some.
“I realize we have a problem here,” Johnson said in an interview. “I just don’t know yet the extent to the problem, how many dollars it’s going to take to fix it, where that’s going to come from.” Until it’s fixed, he said, he’s a “no” vote on the Senate measure.
GOP tax efforts seemed to gain momentum on Thursday as the House passed its tax bill and Republicans on the Senate Finance Committee voted later that night to amend and approve their plan.
But Johnson’s misgivings may throw a wrench into President Donald Trump’s top domestic priority. Senate Republicans -- who aren’t counting on Democrats to support their plan -- can spare the defections of no more than two members before the bill would collapse. Party leaders say they want to address Johnson’s concerns, but admit it will be difficult.
Currently, businesses organized as pass-throughs don’t pay income tax themselves, instead passing earnings to their owners, who pay at their individual rates. The top rate is currently 39.6 percent, but the Senate plan would cut it to 38.5 percent.
The plan that the Senate Finance panel approved Thursday night would allow all pass-through structures to deduct 17.4 percent from their business income -- up to $500,000 for married couples. The income would then be taxed at the owners’ ordinary individual income tax rates.
Difficult Vote
Johnson was a difficult vote for GOP leaders to corral earlier this year as they tried and ultimately failed to repeal Obamacare. His position zig-zagged as he threatened to vote against various iterations of the Senate plan due to policy and process concerns, and he even feuded with Majority Leader Mitch McConnell. Ultimately, he voted for the bill.