The House bill would end that gravy train, however, by disallowing a businesses' net interest expense (interest expense in excess of income) in excess of 30% of the company's EBITDA. That's right, you heard me...EBITDA is now factoring into tax ...
Paul Ryan and Donald Trump. Carlos Barria/Reuters
The Tax Foundation on Friday released an analysis of the Tax Cuts and Jobs Act.
The report says the bill would add the federal deficit outside of 10 years, breaking Senate rules.
That means the bill would need significant changes to make it to President Donald Trump's desk.
Just more than 24 hours after House Republicans released their massive tax bill, it's already hitting some snags.
According to a new analysis from the Tax Foundation, the new House bill — the Tax Cuts and Jobs Act (TCJA) — would run into a Senate rule that would prevent the bill from being passed.
Since Republicans only control 52 seats in the Senate, the party is using what is known as budget reconciliation to pass the bill. The process allows a bill to be passed with a simple majority, in this case to avoid a filibuster by Democrats.
But any bill passed under reconciliation has to adhere to what's known as the Byrd Rule. One of the provisions of the Byrd Rule is that any bill going through the reconciliation process can't add to the federal deficit outside of 10 years, which is the length of a budget resolution.
According to the Tax Foundation, the TCJA would add to the deficit outside of the 10-year window, meaning it would require changes to qualify under Senate rules.
The most likely way leaders could cut down on the deficit increase in the second decade would be to make its planned corporate tax cut temporary. The lost revenue from the cut would be added back in after the 10-year window, offsetting much of the projected deficit impact.
Republican leaders have resisted making the corporate tax cut temporary, however, arguing it would mute economic growth, since businesses would adjust their spending to short-term projects or shareholder-focused activities like buybacks.
And according to the Tax Foundation, the potential economic growth from the legislation will be significant in selling the bill politically and procedurally.
Taken on a static basis — without factoring in economic growth — the bill's benefits would skew toward wealthier Americans, the analysis projected. It would add roughly $2 trillion to the federal deficit.
Using dynamic scoring, or factoring in economic growth, gains would be fairly equal across the income spectrum and the bill would only add around $1 trillion to the deficit. But the dynamic scoring method assumes the bill would be passed as is with the permanent corporate tax cut. Without it, the math would likely change.
The distribution of gains is important politically because Republicans have argued their plan would be a tax cut for working families.
In the Tax Foundation analysis, under the static model:
The top 1% would see a 3.3% boost in their after-tax incomes.
Those in the 90% to 99% income distribution level would actually see a after-tax income decrease.
And Americans in the 40% to 60% income bracket would see just a 0.5% increase.
Under dynamic scoring, this would shift to:
A 3.9% boost for the top 1%
A 3.8% boost for the top 90% to 95%
And a 4.6% increase for those from 40% to 60%.
Procedurally, the economic impact is important — because under the reconciliation rules, it can only add $1.5 trillion to deficit over 10 years. If the economic growth projection slips, however, this could change, putting it outside of that $1.5 trillion window.
SEE ALSO: The GOP tax plan has a tiny 'bubble tax' that could end up raising taxes on the rich
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