January 2, 2018

Congress Passes, President Signs First Major Tax Overhaul In Nearly A Generation

Last week, the U.S. House and Senate approved H.R. 1, the Tax Cuts and Jobs Act, the most significant piece of tax legislation passed by Congress in nearly 17 years. (Click here to see how your representatives in the House voted and here to see how senators voted.)

President Donald Trump signed the bill on Dec. 22. H.R. 1 reduces marginal tax rates for most U.S. businesses and families while keeping programs important to the industrials metals and manufacturing industries.

MSCI had outlined its priorities for tax reform in comments to the U.S. Finance Committee. MSCI said, based on a survey of its membership, the metals industry would be willing to accept certain trade-offs in exchange for “substantial” cuts to individual and corporate income tax rates. MSCI also asked that lawmakers retain LIFO, maintain the interest deduction, end the estate tax, and move to a system that allowed for accelerated or immediate deductions for certain capital expenditures of machinery and equipment. Here is how the legislation handled those priorities:

  • Marginal Tax Rates. MSCI’s comments said the organization’s members were willing to accept certain trade-offs in exchange for “substantial” cuts to individual income tax rates (since most small businesses pay through the individual tax system) and the corporate tax rate. The tax bill calls for:
    • Reducing most of the individual income tax brackets and changing the income limits for each. The bill also increases the Alternative Minimum Tax exemption to $109,400 and raises the phaseout threshold to $1 million for joint filers. These changes would take effect in 2018, but would expire at the end of 2025.

Income Where Tax Rate Starts (2017)

Single / Joint

Current Tax Rate

New Tax Rate

Income Where Tax Rate Starts

Single / Joint

$0 / $0



$0 / $0

$9,325 / $18,650



$9,525 / $19,050

$37,950 / $75,900



$38,700 / $77,400

$91,900 / $153,100



$82,500 / $165,000

$191,650 / $233,350



$157,500 / $315,000

$416,700 / $416,700



$200,000 / $400,000

$418,400 / $470,700



$500,000 / $600,000

  • Lowering the corporate tax rate from 35 percent to 21 percent an eliminating the corporate AMT. This provision would take effect in 2018 and would not expire.
  • Creating a 20 percent deduction for pass-through business (S-Corps, Partnerships, Limited Liability Companies, Sole Proprietorships) income. The deduction is limited to the greater of (a) 50 percent of wage income or (b) 25 percent of wage income plus 2.5 percent of the cost of tangible depreciable property for qualifying businesses, including publicly traded partnerships but not including certain service providers. Limitations (both caps and exclusions) do not apply for those with incomes below $315,000 (joint), and phase out over a $100,000 range.
  • Interest Deduction. MSCI asked that lawmakers maintain the interest deduction since eliminating this provision would result in a “huge permanent tax increase” for MSCI members. The bill caps the net interest deduction at 30 percent of earnings before interest, taxes, depreciation, and amortization (EBITDA) for four years, and 30 percent of earnings before interest and taxes (EBIT) in the years following.
  • Current Expensing Of Equipment. While noting that preservation of the interest deduction was a higher priority, MSCI asked that lawmakers move to a system that allowed for accelerated or immediate deductions for certain capital expenditures of machinery and equipment. According to the Tax Foundation, the bill allows 100 percent expensing of short-lived capital investment, such as machinery and equipment, for five years, and then phases out the provision over the subsequent five. The bill also raises Section 179 small business expensing cap to $1 million with a phaseout starting at $2.5 million.
  • Last In, First Out (LIFO). MSCI called for the retention of LIFO, and the bill would keep LIFO in place.
  • Territorial Tax System. MSCI recommended that lawmakers move the United States toward a territorial system and allow multinational companies to bring back profits to the United States without double taxation. The bill achieves this goal by creating a permanent territorial system with anti-abuse rules and a base erosion anti-abuse tax (BEAT) at a standard rate of 5 percent of modified taxable income over an amount equal to regular tax liability for the first year, then 10 percent through 2025 and 12.5 percent after that. The bill also allows deemed repatriation of currently deferred foreign profits at a rate of 15.5 percent for liquid assets and eight percent for illiquid assets.
  • Estate Tax. MSCI requested that lawmakers eliminate the estate tax. The bill increases the estate tax exemption to $10 million starting in 2018.