Republicans will increase the size of the one-time tax on overseas corporate earnings to pay for bigger small business tax breaks in their tax bill, several senators said Friday.
The change was a key last-minute revision to the bill meant to gain the votes of Sens. Ron Johnson of Wisconsin and Steve Daines of Montana. They had withheld support for the tax cut on the grounds that it put non-corporate small businesses at a disadvantage to corporations getting a 20 percent tax rate. With Johnson and Daines, leaders said they had 50 votes for the bill Friday morning.
To pay for that bigger tax break for so-called pass-through businesses, the rates to be imposed on the estimated $2.6 trillion in earnings that multinationals have outside the U.S. will go up.
Previously, the Senate bill called for taxing unrepatriated profits at 10 percent for cash, and 5 percent for earnings reinvested overseas. Those rates would rise to the levels set in the House bill, Johnson said. Respectively, the rates would be 14 percent and 7 percent.
That tax would be imposed regardless of whether the corporations brought the earnings back. The Treasury would simply "deem" the funds to have been repatriated and tax them at those rates.
By bringing the Senate and House provisions on the one-time tax into alignment, it would smooth the path to combining the two bills, Johnson said.
"Might as well reconcile it here, recognize that revenue to basically pay for what we did with the pass-throughs," Johnson told reporters.
In effect, the change would redirect some tax cuts from multinationals to sole proprietorships, partnerships, and other businesses that file through the individual side of the tax code.
Previously, the Senate bill had effectively created a 32 percent top rate for those pass-through businesses. The deal struck by Johnson and Daines would essentially lower that rate to 29 percent.