Tax Geek Tuesday: How Does The New Limitation On Deducting Business Interest Expense Work?
If you tuned in to the President’s State of the Union address last week, you surely noticed that the recently enacted Tax Cuts and Jobs Act has been earmarked as the elixir for all that ails America. Soon enough, assembly line workers and supermarket cashiers will be lighting cigars with $100 bills — all because $1.5 trillion in corporate and individual tax cuts have been placed on the ol’ national credit card.
And while that may come to pass, it is important to remember that in any tax bill, while the good news gets the headlines, there is always more to the story.
For example: there are over $4 trillion in tax cuts contained within the Act. But remember: because Republicans chose to use the streamlined budget reconciliation process to pass the bill without a single vote from a Democrat, their hands were tied from a fiscal perspective: the net tax cuts could not exceed $1.5 trillion over the next ten years.
So how did Republicans get $4 trillion in tax cuts to fit within a $1.5 trillion-sized box? By offsetting some of the cuts with tax increases.
Think about the business side of the Act: The corporate rate was reduced from 35% to 21%, a move that ALONE would amount to a $1.3 trillion tax cut over the next decade. That’s right: the tax break resulting from the corporate rate reduction, in isolation, nearly matched the total cuts permitted by the budget reconciliation process.
Continue reading on, Forbes.com
Authored by Tony Nitti, Withum Partner and writer for Forbes.com.
