Senate Finance Chairman Orrin G. Hatch released Thursday a summary of the panel’s legislation to overhaul the U.S. tax code that would dramatically lower the corporate tax rate, increase the child tax credit, remove popular tax exemptions many Americans take and nearly double the standard deduction for individuals and families.
Apart from the headline-grabbing provisions, tucked away in the 253-page chairman’s mark are several other notable changes to the current tax code. Many of the proposals are intended to pay for the hallmark provisions, like the corporate tax rate cut.
Given the sprawling and complex nature of the existing tax code, several may be unknown to the average American. But they are sacrosanct for businesses like non-profits and will likely be met with strong resistance.
Below are five measures in the chairman’s mark that might raise an eyebrow or two. When you hear the lore of tax lobbyists descending on Capitol Hill, some of these are the provisions they are trying to protect.
Under current law, individuals who commute to work via bicycle are allowed to exclude up to $20 each month from their gross income per bicycle. Among the expenses currently reimbursable are bike repairs and storage.
In the Republican plan, that exclusion would be repealed beginning in 2018. The Joint Committee on Taxation says it would bring in less than $50 million over ten years in additional federal revenue.
Royalties on logos
Non-profit institutions (colleges, for example) generally have four sources of income.
Three of them — gifts or contributions, business income related to the mission of the organization and investment income — fall under the federal income tax exemption.
But any income that comes from avenues unrelated to the mission (i.e., to provide quality education, in the case of an academic institution) is taxed at the U.S. corporate tax rate.
What does this mean?
Take your favorite sweatshirt you bought as an undergrad at the University of Illinois. Under the current tax code, the institution could count that as income related to its “overall mission,” meaning it falls under the federal income tax exemption.
But under the Senate’s plan that revenue would now be subject to the corporate tax rate — which would be reduced under this proposal to 20 percent.
The new provision would apply to licensing agreements too, so income from any sales arrangements — like the National Collegiate Athletic Association merchandising licensing program — could also be subject to the corporate tax rate.
The JCT estimates the provisions would bring in an additional $2 billion in federal revenue over ten years. Expect colleges to mount substantial resistance to this proposal.
Season football tickets aren’t charitable giving?
Colleges take another hit to the chin in the Senate bill.
It’s not uncommon for an academic institution to provide season football tickets (or season tickets to other sporting events) to donors in exchange for major contributions. That exchange is currently treated as a charitable deduction, meaning both the donor and the institution receive a tax break.
Senate Republicans are now proposing to treat that exchange as a source of income, meaning it would no longer count as a charitable contribution and instead would be subject to the corporate tax rate.
While universities are likely to also push back against this proposal, college students may welcome it as a chance to snag better seats that may have instead gone to a wealthy benefactor.
The JCT estimates the measure would generate $1.9 billion in federal revenue over the next ten years.
Cruise-ing to more taxes
The Senate bill would create a rather complex new calculation to determine what portion of profits earned by international cruise ships that come to America count as taxable income under the U.S. tax code.
Under the proposal, cruise ship companies would need to determine how long they spend in U.S. territorial waters, and how many individuals from the ship disembark on American soil.
The JCT estimates the provision would bring in more than $700 million over ten years in federal revenue.
A ding on office perks
Silicon Valley technology companies became famous for their extravagant office perks. While benefits like free food surely help draw talent to the companies, the organizations receive some benefit from providing it. Companies can currently deduct 50 percent of the total cost of providing food and beverages to employees.
Under the Senate bill, however, that tax benefit would be repealed and instead, companies might only be able to deduct half the price of just the meals.
The JCT estimates it would generate $22.4 billion in additional federal revenue over ten years.