WBA sent a message to each of the members of the Wisconsin House Delegation regarding their tax reform proposal (H.R. 1 Tax Cuts and Job Act). The content highlighted the positives and negatives of the proposal. The full text is available below (this particular message was sent to Rep. Mike Gallagher).
A similar message will be sent to the Senate as soon as WBA has had the opportunity to fully review their version of the tax reform proposal. Currently, we know the Senate somewhat changed the S-corp from the House.
It offers a 17.4 percent deduction for business income from “pass-through” entities, including Subchapter S banks—limited to 50 percent of the individual taxpayer’s W-2 wages—a different structure for pass-through taxation than in the House bill. The Senate version also starts the corporate tax break in 2019 rather than 2018.
The following is the full text of WBA’s message to the Wisconsin House Delegation.
WBA is encouraged by the continued dedication of Congress and the Trump administration to pass pro-growth tax reform. Certainly we support the goals of broadening the base, lowering the marginal tax rates for businesses and individuals, and reforming the tax code so it is more fair. However, WBA has some concerns related to the overall package as we understand it today, a few of which are noted below, and WBA believes that now is the time to really take a step back and focus on the choices being made in crafting a comprehensive tax reform package that necessarily picks winners and losers.
I encourage Rep. Gallagher to carefully consider the policy implications that several provisions in the proposal will have on the banking industry. Central to economic growth in local markets across the country, including Wisconsin, is the need for healthy, diverse banks. Providing as much benefit as possible in this tax reform package to banks so that they can continue to drive economic growth is critical. Looking to this same industry to pay for more by taking away deductions must be closely balanced with retaining the lower corporate tax rate of 20%. Congress must also ensure there is an equal benefit of lowering the marginal tax rate for Subchapter S banks. In Wisconsin, there are nearly 70 community banks, approximately one third of the total, that are organized under Subchapter S of the tax code. The House version applies an unworkable formula for active shareholders of Subchapter S community banks and should be changed to recognize the benefits of these institutions to the community.
Choosing to harm individual taxpayers by removing student loan interest and medical expense deductibility while protecting the outdated expenditures given to large credit unions over $1 billion, which comprise only 4 ½% of the industry, operate as tax-exempt banks and buy naming rights to stadiums, must change. This congressionally supported policy distorts the marketplace by favoring one type of financial institution over the other. If the goal of tax reform is to expand the base and lower rates particularly for the middle class, it is no longer good public policy to continue to keep sacred outdated expenditures for large credit unions. At a time when the nation is facing a student loan debt crisis, it is interesting that such a choice affecting hundreds of thousands of voters who comprise the future of this country would be made when this same appropriation could be recouped through closing outdated expenditures such as this one affecting only 4 1/2 % of the credit union industry.
Finally, Wisconsin’s Community Development Financial Institutions rely, in many ways, on New Market Tax Credits. The House version terminates the new markets tax credit for low-income communities and will leave bank CDFI partners without critical revenue to serve low income households in many rural areas of Wisconsin.
As taxpayers, the banking industry is ready to provide support for the tough decisions that must be made in order to meaningfully reform our current tax code. WBA believes reform can be achieved for both individuals and business that is beneficial and makes us more globally competitive without detrimentally harming students, individuals with high medical expenses and low income communities. Leaders must be willing to make the tough decisions necessary for the betterment of this country and that includes closing outdated expenditures. WBA trusts Rep. Gallagher will be a strong leader as this legislation progresses.
Rose Oswald Poels
Wisconsin Bankers Association