- Wisconsin Sen. Ron Johnson became the first Republican senator to oppose the Republican tax bill.
- Johnson says the bill isn’t fair to some businesses.
- He has more at stake than many other senators with the tax overhaul.
Johnson is upset because the plan doesn’t do enough to help pass-through businesses. These are businesses that don’t pay their own taxes, but pass income through to their owners, who pay taxes on their individual income tax returns.
These are sometimes referred to as “small business” entities, but there’s no rule that a pass-through business has to be small; even some Trump businesses are pass-throughs.
The Senate tax plan includes a tax break for pass-throughs, but it’s less generous than one proposed in the House of Representatives, and it doesn’t offer the flexibility for capital-intensive firms that Johnson called for last month. The pass-through tax break would also be scheduled to expire in 2025, at the same time as tax cuts for individuals, while corporate tax cuts would be permanent.
“Neither the House nor Senate bill provide fair treatment, so I do not support either in their current versions,” Johnson said in a statement. “I do, however, look forward to working with my colleagues to address the disparity so I can support the final version.”
Besides his concerns about the bill substance, Johnson is also annoyed he’s been kept out of the bill-writing process, according to the Journal.
During the healthcare debate, Johnson developed a reputation as someone who made a lot of public complaints and threats about bills but ultimately was there to vote for repeal when leadership really needed him. But the tax bill may be different.
Johnson holds a degree in accounting. Before he was in the Senate, he was an owner-manager of a manufacturing firm organized as a limited-liability company – that is, he was exactly the sort of taxpayer he was concerned would get the short end of the stick in designing a pass-through tax preference.
His financial disclosure forms reflect that he continues to hold a 5% interest in that manufacturing firm (PACUR LLC) and that he holds interests in several other pass-through entities. Johnson may be one of the few people in America with a stronger emotional stake in pass-through taxation rules than in healthcare policy.
I’m not saying Johnson will ultimately vote against the tax bill. Republican leaders could change the bill to get his vote. But it won’t be an easy fix.
Making the pass-through tax break more generous and more flexible, as Johnson wants, would significantly increase its cost. But since the total amount of tax cuts in the bill can’t be increased, doing this would require taking away tax breaks from someone else, threatening some other part of the pro-tax reform coalition.
And making the pass-through tax break permanent like the corporate tax cut would be challenging because the legislative process being used to move the tax bill cannot be used if the bill would increase the deficit in the long run.
This seemingly technical issue remains a big problem for tax reform.