- Senate Republicans rolled out their giant tax reform bill on Thursday.
- The bill is expected to contain large differences from the House’s Tax Cuts and Jobs Act.
Senate Republicans leaders debuted their own attempt at a massive tax reform on Thursday, setting up substantial changes to American’s tax code and a showdown with the House over what exactly would make its way to President Donald Trump’s desk.
The bill makes large changes to both the personal and corporate side of the tax code with a goal of generating increased investment and economic growth.
The legislation also contains some substantial departures from the House’s tax bill, the Tax Cuts and Jobs Act (TCJA), that have to be ironed out for either bill to become law. The Senate bill, by the way, keeps the same name.
The tax legislation can only add $US1.5 trillion over the next 10 years to the federal deficit to be considered under the budget reconciliation process. That process allows Senate Republicans to pass the bill on a party-line vote and avoid a Democratic filibuster.
Here’s a breakdown of what the Senate bill proposes and where it differs from the House:
- Delays the massive corporate tax rate cut: The bill would wait until 2019 to slash the corporate tax rate to 20% from the current 35%. This would help the bill’s immediate deficit impact.
- Keeps the number of individual tax brackets at seven: The Senate bill keeps the same number of brackets as the current code but shifts the income that qualifies for each one others brackets’ rates. The rates would be 10%, 12%, 22.5%, 25%, 32.5%, 35%, and 38.5% under the new bill.
- Eliminates the state and local tax deduction: The bill completely eliminates the SALT deduction, as opposed to the House bill’s compromise position that allows up to $US10,000 in property tax deductions but no state sales or income deduction. The issue has been a key sticking point in the House. It’s an easier go for Senate Republican leaders, since the Senate GOP has no members in states like New York and California that heavily use the deduction.
- A new 12.5% tax on patents and intellectual property overseas: The plan includes a provision that would tax patents and other IP filed overseas. This targets firms like US pharmaceutical companies who file patents for drugs overseas and book the profits for those drugs in lower-taxed companies.
- Keeps the estate tax, but raises the threshold: The estate tax would remain intact in the Senate bill, instead of being phased out like in the House bill. The threshold for an estate to qualify, however, is immediately doubled. The current threshold for 2018 is $US5.6 million of individuals and $US11.2 million for a couple.
- Increases child care tax credit: The credit per child is $US1,650 in the Senate plan, above the current $US1,000 credit and the $US1,600 credit in the House GOP bill.
- Maintains the mortgage interest deduction: The bill keeps the cap for the deduction at $US1 million, as opposed to the House bill, which would cut it to $US500,000. The House’s proposed cut caused an uproar from homebuilder and realtor groups.
- Maintains many itemized deductions for adoption and medical expenses: The House bill stirred up controversy for eliminating popular tax credits like those for medical expenses and adoption. The Senate bill keeps both of those credits, sidestepping those issues.
- Eliminates the House bill’s “bubble tax” on the wealthy: The House bill included a provision that would attempt to claw back some of the benefits for wealthier people. Essentially, wealthier individuals would see their tax rate increase be 6% for income between $US1 and $US1.2 million. The Senate bill contains no such provision.
- Does not repeal Obamacare’s individual mandate: Some GOP senators, including Ted Cruz and Tom Cotton, have pushed for the bill to repeal Obamacare’s penalty for not having insurance. While the move would help generate more revenue for the bill, it would also leave 13 million more people without insurance over the next 10 years and introduce healthcare issues into an already volatile process.