Nation

Tax law’s errors shake employers, as leaders feud

Thomas Lien Jr., president of Dakota Mill & Grain, stood in front of the grain elevator on which his business spent $20 million — money he now regrets spending.
Kristina Barker/New York Times
Thomas Lien Jr., president of Dakota Mill & Grain, stood in front of the grain elevator on which his business spent $20 million — money he now regrets spending.

WASHINGTON — The legislative blitz that rocketed the $1.5 trillion tax cut through Congress in less than two months created a host of errors and ambiguities in the law that businesses big and small are just now discovering and scrambling to address.

Companies and trade groups are pushing the Treasury Department and Congress to fix the law’s consequences, some intended and some not, including provisions that disadvantage certain farmers, hurt restaurateurs and retailers, and could balloon the tax bills of large multinational corporations.

While the Treasury can clear up uncertainty about some of the murky provisions, actual errors and unintended language can be solved only legislatively — at a time when Democrats seem disinclined to lend votes to shoring up a law they had no hand in passing and are actively trying to dismantle.

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On Thursday, the US Chamber of Commerce sent the Treasury Department 15 pages of detailed requests for clarification on how the law affects multinational corporations, mutual fund investors and mom-and-pop pass-through entities.

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It was a public display of the lobbying that businesses are waging primarily behind the scenes to change or shape enforcement of the law, most notably its byzantine new provisions intended to crack down on multinationals sheltering profits abroad for tax purposes.

“The question is whether our system is set up today in a way to do little mid-course corrections as time goes on, or is it not,” said Dana Trier, who left the Treasury Department in February after serving as deputy assistant secretary for tax policy during the drafting of the bill.

“The mistakes or unintended consequences for this or that group won’t show up for months,” Trier said.

The result could be a tax-theme replay of the years after passage of the Affordable Care Act, when Republicans refused to cooperate with technical corrections legislation and a Democratic administration was forced to push the limits of its authority to address concerns in the enforcement of its signature policy accomplishment.

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Among the problematic portions to emerge is what has become known as the “grain glitch.”

A late change to the legislation altered a deduction for US production in a way that permitted farmers to deduct 20 percent of their total sales to cooperatives — agricultural organizations owned by groups of farmers that operate for the benefit of their members.

This allows farmers to deeply reduce their tax bills, but it has caused an uproar among independent agriculture businesses that say they can no longer compete with cooperatives, since farmers would choose to sell to cooperatives to take advantage of the more generous tax break.

The conservative Tax Foundation said the flaw should be addressed quickly, saying that, if left in place, “the deduction would allow some farmers to effectively become tax-exempt.”

Leaders of independent grain companies from Oklahoma, Minnesota, and South Dakota traveled to Washington in late February to make their case to lawmakers that a fix was urgently needed, warning that businesses like theirs could collapse or be sold.

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“We will be much more receptive to selling our business if this happens,” said Todd Lafferty of Wheeler Brothers Grain Co. in Watonga, Okla. “It’s going to result in further consolidation of the industry, but that’s not what we want to do.”

Lafferty, a Republican, said he was excited about the new tax legislation until he heard about the provision. Despite the other benefits of the law, he said, he would rather be governed by the old tax code than face a competitive disadvantage to nearby cooperatives.

Thomas Lien Jr., of Dakota Mill and Grain in Rapid City, S.D., said he already regretted the $20 million investment his business made in 2017 to build a shuttle loader grain elevator for moving large quantities of grain because farmers were now only interested in selling to cooperatives. He wondered how his business and others like it could survive.

“It’s going to drive investments in rural America away,” Lien said. “We can’t compete.”

But legislative fixes will be tough. Unlike the original tax bill, which passed along party lines, legislation correcting any portion of the tax bill will require Democratic votes to get through the Senate.

The law passed Congress via the budget reconciliation process, which bypassed a Senate filibuster and enabled Republicans to approve it on a party-line vote in both chambers. A fix-it bill would need at least nine Democrats in the Senate to join Republicans.

For now, at least, Democratic leaders appear disinclined to provide those votes. They are still fuming over the partisan process that delivered the bill to President Trump’s desk.

“I’m willing to make technical changes, but they have to be substantive, too,” said Senator Sherrod Brown, an Ohio Democrat, who is a member of the Finance Committee. “We’re not just going to sit down and fix the things they did badly because they did it in the dead of night with lobbyists at the table.”

A second, much larger group of issues are those that need Treasury clarification — areas of the law that companies say could be construed in any number of ways, with vastly differing consequences for tax liabilities.

That includes questions over which businesses, and what types of business income, qualify for a new 20 percent deduction for pass-through entities, whose owners pay taxes on the companies’ profits through the individual code.

It also includes a dizzying number of concerns over the new system for taxing multinational corporations that the law created.