The most sweeping overhaul of the U.S. tax code in 31 years was signed into law by President Donald J. Trump on Dec. 22, 2017.
The bill (H.R. 1) includes a number of provisions long sought by the chemical industry, such as slashing the corporate tax rate from the current 35% to 21% and taxing U.S.-based multinationals only on their domestic income. The House of Representatives passed it on a vote of 224-201.
“After decades enduring an outdated tax code that made U.S. businesses less competitive, our nation will soon have a modernized tax structure that promotes sustained American economic growth and new jobs,” says the American Chemistry Council, which lobbies on behalf of U.S. chemical manufacturers.
The legislation, which the Senate approved on a party-line vote of 51-48, also leaves graduate students largely unscathed by preserving tax-free tuition waivers.
A provision in the original GOP House tax plan passed in early November proposed taxing as income the value of tuition waivers that U.S. grad students receive when they teach courses or conduct research for their university. That set off a wave of protests at dozens of universities.
The measure was scrapped after 31 Republican lawmakers who voted for the House tax bill sent a letter to party leaders urging them to remove the provision from the final version of the legislation.
“Repeal of the income exclusion for graduate tuition waivers would subject thousands of graduate students to a major tax increase at a time in their lives when they likely lack the ability to pay,” the lawmakers wrote.
Some private colleges and universities will take a hit, however, from a 1.4% excise tax on investment income from endowments at schools with an enrollment of at least 500 students and with assets valued at $500,000 per full-time student. The endowment tax will affect about 35 institutions and is estimated to raise about $1.8 billion in revenue over 10 years.
“An excise tax on the endowments of some private colleges and universities, regardless of how many or how few institutions it affects, is a remarkably bad idea that takes money that would otherwise be used for student aid, research, and faculty salaries and sends it to the Department of the Treasury to finance corporate tax cuts,” says Ted Mitchell, president of the American Council on Education, a higher-education trade group.
For the pharmaceutical industry, the legislation retains but cuts in half a tax credit intended to encourage development of orphan drugs to treat rare diseases that affect fewer than 200,000 people. Since 1983, companies have been allowed to write off 50% of the cost of human clinical studies to develop drugs aimed at small patient populations. The new law sets the tax credit to 25%.
As a result of the smaller tax credit, the National Organization for Rare Disorders (NORD) estimates that one-third fewer orphan therapies will be developed going forward.
“The cost of conducting rare disease clinical trials could rise substantially enough to discourage some biopharmaceutical companies from developing orphan therapies altogether,” says NORD, which advocates on behalf of the 30 million Americans with rare diseases.
Republicans say the tax overhaul will boost the economy by incentivizing new investments by U.S. companies and preventing jobs from being outsourced to other countries. But Democrats have lambasted the bill, arguing it provides tax breaks primarily to the wealthiest people and most profitable corporations.