It took the better part of a year, but the GOP and President Trump have their first major legislative win under their belts. Though healthcare reform failed on many accounts, tax reform has not. After some smoothing over, a reconciled tax bill between House Republicans and GOP Senators passed muster in Congress and won President Trump's signature to become law.
The new law, known as the Tax Cuts and Jobs Act, has two primary purposes: cut taxes, and simplify the tax code. For instance, individual taxpayers will find that some of the income ranges that correspond to a specific income-tax rate have been increased, while a few of the seven separate tax rates have been decreased. Also, the standard deduction for single and married tax filers has been nearly doubled, while a number of deductions and credits were eliminated.
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Corporations might be an even bigger beneficiary. The Tax Cuts and Jobs Act lowers the peak marginal corporate income-tax rate form 35%, which is among the highest in the world, to just 21% on a permanent basis. The thesis here is that putting more money into the pockets of businesses will allow them to hire more workers, boost the wages of existing employees, and expand through reinvestment.
This industry won't be seeing green following the new tax law
However, not every industry is going to be able to take advantage of the new law. Marijuana companies that had been hoping for a reprieve from U.S. tax code 280E will continue to get the short end of the stick.
U.S. tax code 280E, which has been on the books for over three decades, states:
No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.
In plainer English, because marijuana is still a Schedule I, and thus wholly illegal, drug at the federal level, pot businesses remain unable to take normal corporate income-tax deductions. That leaves businesses that are profitable to pay an effective tax rate of as much as 90% on their profits. This tax rate is especially crippling considering that Marijuana Business Daily's latest annual report forecasts legal U.S. sales growth of 45% in 2018.
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Sen. Cory Gardner (R-Colo.) tried to make headway during the Senate's phase of tax discussions in early December. He submitted an amendment for discussion that would have removed marijuana businesses from the constraints associated with 280E, allowing them to be taxed like a normal business.