On Thursday, November 9, Chairman Orrin Hatch (R-UT) of the Senate Finance Committee released draft tax reform legislation. On the same day, the House Ways and Means Committee passed H.R. 1, the Tax Cuts and Jobs Act, with amendments on a party-line vote of 24-16. A comparison of the major provisions of the bills is below.
- Senate: Keeps current seven tax bracket structure. Lowers top rate to 38.5% and raises income threshold to $500,000 for individuals and $1 million for joint filers. Also includes 35%, 32.5%, 25%, 22.5%, 12%, and 10% brackets.House: Consolidates to four brackets: 39.6%, 35%, 25%, 12%. The House’s top tax rate also begins at $500,000 for individuals and $1 million for joint filers.
- Senate and House plans both roughly double the standard deduction. House goes to $24,400 and the Senate has a $24,000 standard deduction.
- Both plans increase the child tax credit and raise the income caps. Senate provides $1,650 per child; House provides $1,600 and requires filers to provide Social Security Numbers for children to claim the full credit.
- Senate: Fully repeals SALT deductions.House: Retains deduction for up to $10,000 in annual property taxes.
- Senate: Retains mortgage interest deduction for loans up to $1 million. Repeals interest incurred on home equity loans and lines of credit.House: Caps the mortgage interest deduction at $500,000 on new homes. Also repeals home equity deduction and the ability to deduct interest on vacation homes.
- Senate: Doubles estate tax threshold beginning in 2018.House: Doubles the estate tax threshold in 2018, and eliminates it in 2024.
- Both plans repeal Alternative Minimum Tax.
- Both plans maintain the adoption tax credit.
- Senate: Maintains $7,500 tax credit for electric vehicle purchases.House: Repeals the electric vehicle tax credit.
- Senate: Lowers corporate rate to 20% starting in 2019.House: Lowers corporate rate to 20% starting in 2018.
- Senate: Creates a 17.4% deduction for pass-through business income.House: Lowers the business income rate to 9% for businesses earning less than $75,000 (phasing out between $150,000 and $225,000); higher-earning businesses would pay 25% on 30% of income and normal rates for the remainder.
- Both House and Senate plans move to territorial tax system and allow for immediate expensing for businesses.
- Both plans cap business interest deductibility at 30%.
- Senate: Makes no changes to carried interest tax break, but Senate Finance Committee expected to address this issue during mark-up.House: Imposes a three-year holding period requirement for gains on a carried interest in an investment or real estate business.
- Senate: Repeals Net Operating Loss (NOL) deductions for life insurance companies.House: Original bill had similar provision, however it was stripped out during the Ways & Means markup.
- Both plans includes a 1.4% excise tax on endowment income for private colleges with assets of at least $250k per student.
- Senate: Lowers historic tax credit from 20% to 10% on qualified rehabilitation expenditures.House: Fully repeals historic tax credit.
- Senate: Keeps in place current tax exemption on private activity bonds which help finance infrastructure projects. Ends tax exempt status on advance refunding bonds.House: Repeals tax exempt status of private activity bonds and advance refunding bonds.
- Senate: Keeps in place New Markets Tax Credits (currently authorized through 2019), tax credit bonds and tax-exempt bonds for professional sports stadiums.House: Repeals New Markets Tax Credits, tax credit bonds and tax-exempt bonds for stadiums.
- Senate: Repatriation tax of 10% on investments held in cash and 5% on illiquid assets.House: Repatriation tax of 14% on cash investments and 7% on illiquid investments.
- Senate: Imposes 10% tax on deductible payments to overseas affiliates for goods and services as well as payments to foreign parents of companies considered to have inverted.House: Applies a 20% excise tax on similar payments, but allows complying companies to take more deductions and also gives them credits for some taxes paid in other countries.
The Senate Finance Committee is scheduled to begin marking up its bill on November 13 and is expected to spend most of next week on the bill. It will take support from all of the Republicans on the Committee to be able to pass the bill and send it to the full Senate. Once the bill reaches the full Senate, as early as the week after Thanksgiving, Republicans can only afford two of their senators to oppose the bill and still be able to pass something without Democrats’ support.
H.R. 1 will be on the House floor next week and is expected to pass, enabling the House to send legislation to the Senate. H.R. 1 will then likely be amended with the Senate’s bill and presumably sent back to the House where differences will then need to be addressed. The goal remains to have a bill on President Trump’s desk by Christmas and real difficulties will come once the House and Senate begin negotiating.