How does trucking fare under the President's tax plan? At first blush, there is little for many carriers to get excited about. The only significant relief that is explicitly targeted at business is a permanent extension of the research tax credit — hardly a major item for trucking. There is no cut in excise or corporate income tax, no boost in equipment write-offs, no acceleration of meal deductions.
Two factors offset this negative view. First, as my fellow columnist Martin Labbe has pointed out in the last two issues of FLEET OWNER, to some degree a tax cut will stimulate more purchases of goods. That will translate into higher demand for trucking services.
A more direct impact comes about because many trucking companies — and their owners — are taxed at the individual level, not as corporations. Under the President's plan, most individuals who owe income tax would get a break. The size of the tax break would depend on the individual's (or couple's) total income from all sources, not just their profits from the trucking business.
The individual rate cut proposed by the President and passed by the House sounds quite large, especially for owners who are currently in the top 39.6% rate bracket. Their marginal rate would drop to 33%.
However, an increasing number of those individuals might find their piece of the pie slipping off the fork before they get to enjoy it. The problem is the individual alternative minimum tax (AMT). Once confined to high-income taxpayers with large capital gains or unusual circumstances, the AMT will soon snatch back tax cut goodies from millions of middle-income taxpayers.
A growing number of members of Congress recognize the difficulty and have introduced bills to eliminate or alleviate the AMT. But those bills cost tens of billions of dollars, and, for now at least, the Administration isn't budging from its tax package — with no provision for AMT relief.
Struggling owner-operators would also get tax cuts that may not be as generous as they expect. The President proposed cutting the 15% rate to 10% and the House agreed, with an interim retroactive cut to 12%. However, this cut would apply only at the lower end of the wide 15% bracket. Taxpayers above that floor would get no relief on most of the income that is now subject to the 15% rate.
For the most part, Republican members of Congress and business groups have fallen into line, agreeing to wait until what they hope is the near future for a second tax bill that they could load up with the tax breaks they prefer. But there is a lot of reason to doubt that the much-touted “second train” will leave the tax station or that it will carry the freight most businesses want. Either an economic downturn or demands to restore spending omitted from the Administration's budget could shrivel the surplus enough to make Congress give up on a second bill.
Alternatively, the second bill could get so laden with estate tax reduction, extension of the research tax credit, and other targeted provisions that there would be no room for items helpful to trucking. Even the budget “blueprint” that the President presented in late February contained two dozen revenue proposals, scarcely any of which were pertinent to most carriers. In fact, one of the few trucking-related provisions is an increase in hazardous-materials transport registration fees.
The bottom line: Trucking industry representatives have gone along for the ride, like most business groups. But many owners may find they've been taken for a ride when they actually calculate their tax cut.