Delivering for Best-in-Class Wholesaler-Distributors
June 25, 2019

It has been eighteen months since the President signed into law the Tax Cuts and Jobs Act of 2017 (TCJA), and the Treasury Department has completed most of its work writing regulations interpreting and implementing the statute. In the process, a number of issues arose about possible drafting errors in the language of the law, many of which cannot be remedied by regulations but would require Congress to pass a “technical corrections” bill.

Up until now, Congressional Democrats have made it clear that they would not work with the Republicans on technical corrections, arguing that since the GOP passed the bill with no input from Democrats they (Democrats) were not going to cooperate in an effort to fix the errors. However, in late June House Ways and Means Committee chair Richard Neal (D-MA) held a hearing on three new tax bills, during which he said that the Committee would consider a technical corrections bill this year.

That would be very good news for the many taxpayers impacted by specific provisions of the TCJA, including a number of NAW member companies concerned about the unintended – or intended but inappropriate – consequences of the Global Intangible Low Tax Income provisions – known by the ridiculous acronym GILTI.

The Tax Cuts and Jobs Act of 2017:

NAW has been involved in the fight for tax reform for many years, and as reform finally became a real possibility in 2017, we had clear priorities critical to the distribution industry: leveling the uneven playing field in terms of effective tax rates for both corporations and pass-through companies and the preservation of Last-In, First-Out (LIFO) inventory accounting, which is widely used in our industry.

The TCJA was widely seen as a business-friendly tax bill, and its authors’ intent was to have the new law encourage economic growth and job creation. While opponents of the TCJA argue that it was simply “a tax cut for the rich,” that is a wholly inaccurate description, since virtually every individual taxpayer benefited from a reduction in his/her taxes. But the business provisions in the tax bill were significant.

Key business provisions in the TCJA:

  • C corporation income tax rate reduced from 35 percent to 21 percent. Corporate AMT repealed. Both changes permanent.
  • Pass through businesses provided a 20 percent deduction from business income, not to exceed 50 percent of W-2 wages, and pay 37 percent on the balance for a blended business rate of 29.6 percent, down from 39.6 percent. Provisions expire at the end of 2025.
  • LIFO preserved.
  • Bonus depreciation increased to 100 percent for 5 years, reduced by 20 percent per year thereafter; expiring at the end of 2027.
  • Liberalized small business expensing.
  • Death tax exclusion doubled to $22.4 million per couple, $11.23 million per individual. Stepped up basis retained. Provisions expire at the end of 2025.
  • Transition rules eased for those converting to C corporation status.
  • An international territorial tax regime is established along with a “deemed repatriation” tax.

The Pass-through issues:

While the reduced corporate income tax rate was a clear and welcome change in tax law, the treatment of pass-through businesses was neither clear nor completely welcome. The initial promise of a 25 percent tax rate for pass-through businesses to achieve something close to “rate parity” with the C Corp 21 percent rate proved to be a promise unfulfilled. In fact, the original language in both the House and the Senate bill would have left pass-through businesses with effective tax rates over 30 percent; for some well over that number.

The representatives of the pass-through community in DC lobbied aggressively for better and fairer treatment of pass-through businesses as the final language of the legislation was being developed. While far from perfect, the final bill was much improved over all of the original proposals, providing qualified businesses with a 20 percent tax deduction, resulting in an effective tax rate of 29.6 percent.


NAW has managed the LIFO Coalition since repeal was first proposed in 2006 by a Republican senator, and repeal has been repeatedly sought since by the Obama Administration and Republican tax writers. We long believed that the threat of repeal was far greater in the context of comprehensive tax reform than it had ever been.

Our battle to preserve the use of LIFO was rewarded when neither the House nor the Senate included repeal in their tax reform legislation, even though we had been clearly told by Senate Finance Committee staff that repeal was likely to be included in their reform bill. As we have done multiple times over the last decade, NAW and our colleagues in the LIFO Coalition asked our member companies to contact the Senate Finance Committee members to urge them not to include repeal in their bill. NAW member companies rose to this challenge, and to good effect. The Finance Committee opted to leave LIFO alone, a clear and notable win for wholesale distribution and a case study in how businesses can impact public policy by actively engaging.

NAW will continue to manage the LIFO Coalition since repeal could come up again but keeping LIFO out of the tax reform bill was a huge success – thanks to each of you who helped us preserve LIFO.

What to expect from the 116th Congress:

There could be a strong push in Congress for repeal of the provision in the 2017 law that limited the deduction of state and local taxes – SALT – to $10,000. A bipartisan coalition of members of Congress from high-tax states could well support SALT repeal, but it remains dubious that a majority of both houses of Congress would agree.

The pass-through business community is also pushing for a change in the law that would make permanent the 20 percent deduction, Section 199A of the code. Under current law Section 199A will expire at the end of 2025 and the top pass-through tax rate will return to 39.6 percent. While business support for Section 199A permanence is strong, that provision, too, is unlikely to be enacted in this Congress.

On the other hand, the tax agenda promoted by the new Democratic majority in the House of Representatives and many of the Democratic candidates for President is also unlikely to succeed, and that’s good news for the business community. They have a laundry list of tax increases, both punitive – to “make the rich pay their fair share” – and to fund the costly new government programs they propose.

One of the prime targets is the corporate tax rate, which many Democrats argue should be increased to help “pay for” their expansive new programs. The top individual tax rate, which was reduced from 39.6 percent to 37 percent in TCJA, is also a target, and would impact successful pass-through businesses.